HTC - Interim / Quarterly Report 2017

HTC Corporation and Subsidiaries

Consolidated Financial Statements for the Nine Months Ended September 30, 2017 and 2016 and Independent Auditors’ Review Report

INDEPENDENT AUDITORS’ REVIEW REPORT

The Board of Directors and Shareholders HTC Corporation

We have reviewed the accompanying consolidated balance sheets of HTC Corporation and its subsidiaries (collectively, the “Company”) as of September 30, 2017 and 2016, and the related consolidated statements of comprehensive income for the three months ended September 30, 2017 and 2016, nine months ended September 30, 2017 and 2016, and changes in equity and cash flows for the nine months ended September 30, 2017 and 2016. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to issue a report on these consolidated financial statements based on our reviews.

We conducted our reviews in accordance with Statement of Auditing Standards No. 36 - “Engagements to Review of Financial Statements” issued by the Auditing Standards Committee of the Accounting Research and Development Foundation of the Republic of China. A review consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the Republic of China, the objective of which is the expression of an opinion regarding the consolidated financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to the consolidated financial statements referred to in the first paragraph for them to be in conformity with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and International Accounting Standard 34 “Interim Financial Reporting” endorsed and issued into effect by the Financial Supervisory Commission of the Republic of China.

Deloitte & Touche Taipei, Taiwan Republic of China

October 30, 2017

Notice to Readers

The accompanying consolidated financial statements are intended only to present the consolidated financial position, financial performance and cash flows in accordance with accounting principles and practices generally applied in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to review such consolidated financial statements are those generally applied in the Republic of China.

For the convenience of readers, the independent auditors’ review report and the accompanying consolidated financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language independent accountants’ review report and consolidated financial statements shall prevail. Also, as stated in Note 4 to the consolidated financial statements, the additional footnote disclosures that are not required under accounting principles and practices generally applied in the Republic of China were not translated into English.

HTC CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In Thousands of New Taiwan Dollars)

ASSETS CURRENT ASSETS Cash and cash equivalents (Note 6) Financial assets at fair value through profit or loss - current (Notes 7 and 32) Available-for-sale financial assets - current (Note 32) Debt investments with no active market - current (Note 32) Trade receivables, net (Notes 11 and 33) Other receivables (Note 11) Current tax assets Inventories (Note 12) Prepayments (Note 13) Non-current assets held for sale (Note 14) Other current financial assets (Notes 10 and 34) Other current assets Total current assets NON-CURRENT ASSETS Available-for-sale financial assets - non-current (Note 32) Financial assets measured at cost - non-current (Notes 9 and 32) Debt investments with no active market (Note 32) Investments accounted for using equity method (Note 16) Property, plant and equipment (Note 17) Investment properties, net (Note 18) Intangible assets (Note 19) Deferred tax assets Refundable deposits (Note 32) Long-term receivables (Note 11) Net defined benefit asset - non-current Other non-current assets (Note 13) Total non-current assets TOTAL LIABILITIES AND EQUITY CURRENT LIABILITIES Short-term borrowings (Note 20) Financial liabilities at fair value through profit or loss - current (Notes 7 and 32) Note and trade payables (Notes 21 and 33) Other payables (Note 22) Current tax liabilities Provisions - current (Note 23) Other current liabilities (Notes 14 and 22) Total current liabilities NON-CURRENT LIABILITIES Deferred tax liabilities Guarantee deposits received (Note 32) Other non-current liabilities (Note 22) Total non-current liabilities Total liabilities EQUITY ATTRIBUTABLE TO OWNERS OF THE COMPANY (Note 24) Share capital - ordinary shares Capital surplus Retained earnings Legal reserve Unappropriated earnings Other equity Total equity attributes to owners of the company NON-CONTROLLING INTERESTS Total equity TOTAL		September 30, 2017 (Reviewed) Amount % $ 14,946,264 18 95,099 - 369,547 1 - - 9,899,358 12 276,699 - 169,004 - 15,886,685 19 1,822,999 2 1,640,881 2 8,025,496 10 15,561 - 53,147,593 64 95 - 3,338,151 4 - - 431,924 - 11,394,112 14 - - 2,689,955 3 8,985,569 11 867,970 1 - - 48,792 - 2,347,666 3 30,104,234 36 $ 83,251,827 100 $ 2,000,000 2 142,698 - 18,774,892 23 12,161,635 15 154,961 - 2,867,052 3 3,124,798 4 39,226,036 47 80,125 - 5,803 - 56,811 - 142,739 - 39,368,775 47 8,215,276 10 15,651,714 19 18,297,655 22 3,739,344 4 (2,054,392) (2) 43,849,597 53 33,455 - 43,883,052 53 $ 83,251,827 100		December 31, 2016 (Audited) Amount % $ 30,080,217 29 143,642 - 199,344 - 8,067 - 15,961,835 15 168,526 - 184,817 - 14,163,571 14 1,833,499 2 - - 5,750,450 6 68,414 - 68,562,382 66 86 - 3,363,736 3 25,009 - 531,445 1 12,025,496 12 1,527,001 1 3,878,356 4 8,957,876 9 1,501,480 1 - - 40,439 - 2,735,876 3 34,586,800 34 $ 103,149,182 100 $ - - 133,420 - 26,247,728 26 18,348,734 18 155,651 - 3,384,311 3 3,004,432 3 51,274,276 50 81,294 - 22,106 - - - 103,400 - 51,377,676 50 8,220,087 8 15,614,641 15 18,297,655 18 10,841,425 10 (1,202,302) (1) 51,771,506 50 - - 51,771,506 50 $ 103,149,182 100		September 30, 2016 (Reviewed)
						Amount % $ 30,243,330 27 18,017 - 277,464 - 7,841 - 17,588,035 16 342,391 - 109,990 - 19,257,388 17 2,623,415 3 - - 4,105,821 4 66,876 - 74,640,568 67 92 - 3,221,504 3 8,625 - 521,370 - 12,300,145 11 1,560,744 1 4,145,869 4 8,808,502 8 1,466,192 1 749,433 1 90,435 - 4,150,193 4 37,023,104 33 $ 111,663,672 100 $ - - 167,137 - 29,433,794 26 18,737,270 17 145,466 - 4,883,012 4 2,849,280 3 56,215,959 50 65,971 - 23,362 - 392,037 1 481,370 1 56,697,329 51 8,228,499 7 15,606,473 14 18,297,655 16 13,984,261 13 (1,150,545) (1) 54,966,343 49 - - 54,966,343 49 $ 111,663,672 100

The accompanying notes are an integral part of the consolidated financial statements.

HTC CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In Thousands of New Taiwan Dollars, Except Loss Per Share) (Reviewed, Not Audited)

OPERATING REVENUES (Notes 25 and 33) OPERATING COST (Notes 12, 26 and 33) GROSS PROFIT OPERATING EXPENSES (Notes 26 and 33) Selling and marketing General and administrative Research and development Total operating expenses OPERATING LOSS NON-OPERATING INCOME AND EXPENSES Other income (Note 26) Other gains and losses (Notes 8, 14 and 26) Finance costs Share of the loss of associates and joint venture (Note 16) Total non-operating income and expenses LOSS BEFORE INCOME TAX INCOME TAX BENEFIT (EXPENSE) (Note 27) LOSS FOR THE PERIOD OTHER COMPREHENSIVE INCOME AND LOSS, NET OF INCOME TAX Items that may be reclassified subsequently to profit or loss: Exchange differences on translating foreign operations Unrealized gain (loss) on available-for-sale financial assets Cash flow hedge Other comprehensive income and loss for the period, net of income tax TOTAL COMPREHENSIVE LOSS FOR THE PERIOD		For the Three Months Ended September 30	For the Three Months Ended September 30	For the Three Months Ended September 30		For the Nine Months	Ended September 30	Ended September 30
		2017		2016		2017		2016
		Amount % $ 15,705,695 100 14,095,302 90 1,610,393 10 1,350,400 8 911,973 6 2,637,089 17 4,899,462 31 (3,289,069) (21) 117,618 1 80,150 - (31,920 ) - (11,491) - 154,357 1 (3,134,712 ) (20 ) 7,280 - (3,127,432) (20) 204,801 1 92,965 1 11,668 - 309,434 2 $ (2,817,998) (18)		Amount % $ 22,230,334 100 18,657,367 84 3,572,967 16 2,177,669 10 929,973 4 2,462,365 11 5,570,007 25 (1,997,040) (9) 140,983 1 84,157 - (134 ) - (16,573) - 208,433 1 (1,788,607 ) (8 ) (780) - (1,789,387) (8) (1,288,223 ) (6 ) 63,812 - - - (1,224,411) (6) $ (3,013,798) (14)		Amount % $ 46,372,427 100 40,183,969 87 6,188,458 13 3,689,727 8 2,478,795 5 7,863,926 17 14,032,448 30 (7,843,990) (17) 520,384 1 306,008 1 (43,202 ) - (74,687) - 708,503 2 (7,135,487 ) (15 ) 24,939 - (7,110,548) (15) (1,160,518 ) (2 ) 183,874 - - - (976,644) (2) $ (8,087,192) (17)		Amount % $ 55,913,440 100 48,804,829 87 7,108,611 13 6,736,763 12 3,127,905 6 8,284,522 15 18,149,190 33 (11,040,579) (20) 536,618 1 3,318,417 6 (4,369 ) - (46,076) - 3,804,590 7 (7,235,989 ) (13 ) (228,727) - (7,464,716) (13) (2,221,614 ) (4 ) (65,684 ) - - - (2,287,298) (4) $ (9,752,014) (17) (Continued)

HTC CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In Thousands of New Taiwan Dollars, Except Loss Per Share) (Reviewed, Not Audited)

For the Three Months Ended September 30	For the Three Months Ended September 30	For the Nine Months	Ended September 30
2017	2016	2017	2016
Amount % $ (3,118,965 ) (20 ) (8,467) - $ (3,127,432) (20) $ (2,810,462 ) (18 ) (7,536) - $ (2,817,998) (18) $ (3.80)	Amount % $ (1,789,387 ) (8 ) - - $ (1,789,387) (8) $ (3,013,798 ) (14 ) - - $ (3,013,798) (14) $ (2.18)	Amount % $ (7,102,081 ) (15 ) (8,467) - $ (7,110,548) (15) $ (8,079,656 ) (17 ) (7,536) - $ (8,087,192) (17) $ (8.64)	Amount % $ (7,464,716 ) (13 ) - - $ (7,464,716) (13) $ (9,752,014 ) (17 ) - - $ (9,752,014) (17) $ (9.05)

The accompanying notes are an integral part of the consolidated financial statements.

(Concluded)

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (In Thousands of New Taiwan Dollars) (Reviewed, Not Audited)

HTC CORPORATION AND SUBSIDIARIES

	Equity Attributable to Owners of the Company	Equity Attributable to Owners of the Company
Share Capital Ordinary Shares Capital Surplus $ 8,318,695 $ 15,505,853 - - - - - - (111,600) (192,769) 21,404 293,389 $ 8,228,499 $ 15,606,473 $ 8,220,087 $ 15,614,641 - - - - (4,811) 37,073 - - $ 8,215,276 $ 15,651,714	Retained Earnings Unappropriated Legal Reserve Earnings $ 18,297,655 $ 21,782,432 - (7,464,716) - - - - - (333,455) - - $ 18,297,655 $ 13,984,261 $ 18,297,655 $ 10,841,425 - (7,102,081) - - - - - - $ 18,297,655 $ 3,739,344	Other Equity	Unearned Employee Benefit $ (371,369) - - - - 48,338 $ (323,031) $ (253,922) - - 125,485 - $ (128,437)	Treasury Shares $ (200,955) - - (436,869) 637,824 - $ - $ - - - - - $ -
		Exchange Unrealized Differences on Gain (Loss) on Translating Available-for- Foreign sale Financial Operations Assets $ 1,473,417 $ (13,633) - - (2,221,614) (65,684) - - - - - - $ (748,197) $ (79,317) $ (781,298) $ (167,082) - - (1,161,449) 183,874 - - - - $ (1,942,747) $ 16,792

The accompanying notes are an integral part of the consolidated financial statements.

HTC CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands of New Taiwan Dollars) (Reviewed, Not Audited)

CASH FLOWS FROM OPERATING ACTIVITIES Loss before income tax Adjustments for: Depreciation expense Amortization expense Bad debt (reversed) expenses Finance costs Interests income Dividend income Compensation cost of employee share-based payments Share of the loss of associate and joint venture Net loss (gain) on disposal of property, plant and equipment Gain on disposal of investments Impairment loss on non-financial assets Changes in operating assets and liabilities Decrease in financial instruments held for trading Decrease in trade receivables (Increase) decrease in other receivables Increase in inventories Decrease in prepayments Decrease in other current assets Decrease in other non-current assets Decrease in note and trade payables Decrease in other payables Decrease in provisions Decrease in other current liabilities Increase in other non-current liabilities Cash used in operations Interest received Interest paid Income tax paid Net cash used in operating activities CASH FLOWS FROM INVESTING ACTIVITIES Payments to acquire debt investment with no active market Payments to acquire financial assets measured at cost Proceeds from sale of financial assets measured at cost Acquisition of associates Net cash inflow on disposal of investments accounted for using equity method Net cash inflow on acquisition of subsidiaries		For the Nine Months Ended September 30	For the Nine Months Ended September 30
		2017 $ (7,135,487) 774,157 1,045,126 (362,870) 43,202 (217,336) (23,997) 157,747 74,687 4,943 (24,305) 2,772,973 57,821 6,425,347 (92,031) (4,496,087) 10,500 52,853 257,646 (7,472,836) (6,240,797) (517,259) (1,315,518) 56,811 (16,164,710) 201,194 (28,949) (1,477) (15,993,942) (32,918) (180,705) 85,169 (6,019) - 15,431	2016 $ (7,235,989) 1,417,405 1,269,074 400,049 4,369 (305,967) (138,761) 363,131 46,076 (3,198,367) - 2,518,889 208,069 1,230,864 133,609 (2,652,640) 1,777,553 27,735 574,424 (164,591) (6,202,945) (1,109,246) (840,483) 392,037 (11,485,705) 268,989 (4,369) (346,241) (11,567,326) (8,665) (136,616) - (352,231) 182,578 - (Continued)

HTC CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands of New Taiwan Dollars) (Reviewed, Not Audited)

Payments for non-current assets held for sale Proceeds from disposal of non-current assets held for sale Payments for property, plant and equipment Proceeds from disposal of property, plant and equipment Increase in advance receipts - disposal of property Decrease in refundable deposits Payments for intangible assets Increase in other current financial assets Dividends received Net cash (used in) generated from investing activities CASH FLOWS FROM FINANCING ACTIVITIES Increase in short-term borrowings Decrease in short-term borrowings Refund of guarantee deposits received Buy-back of treasury shares Net cash generated from (used in) financing activities EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS NET DECREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD CASH AND CASH EQUIVALENTS, END OF PERIOD		For the Nine Months Ended September 30	For the Nine Months Ended September 30
		2017 $ (3,830) - (156,667) 2,420 1,388,243 633,510 - (2,275,046) 23,997 (506,415) 14,979,185 (12,979,185) (16,303) - 1,983,697 (617,293) (15,133,953) 30,080,217 $ 14,946,264	2016 $ - 6,060,000 (477,582) 2,926,777 - 114,150 (75,146) (5,531) 83,844 8,311,578 - - (6,797) (436,869) (443,666) (1,404,055) (5,103,469) 35,346,799 $ 30,243,330

The accompanying notes are an integral part of the consolidated financial statements.

(Concluded)

HTC CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise) (Reviewed, Not Audited)

1. ORGANIZATION AND OPERATIONS

HTC Corporation (HTC) was incorporated on May 15, 1997 under the Company Law of Taiwan, the Republic of China. HTC and its subsidiaries (the “Company”) are engaged in design, manufacture, assemble, process, and sell smart mobile devices and provide after-sales service.

In March 2002, HTC had its stock listed on the Taiwan Stock Exchange. On November 19, 2003, HTC listed some of its shares of stock on the Luxembourg Stock Exchange in the form of global depositary receipts.

The functional currency of HTC is New Taiwan dollars. The consolidated financial statements are presented in New Taiwan dollars since HTC is the ultimate parent of the Company.

2. APPROVAL OF FINANCIAL STATEMENTS

The consolidated financial statements were approved by HTC’s Board of Directors and authorized for issue on October 30, 2017.

3. APPLICATION OF NEW, AMENDED AND REVISED STANDARDS AND INTERPRETATIONS

a. Initial application of the amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers and the International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), Interpretations of IFRS (IFRIC), and Interpretations of IAS (SIC) endorsed and issued into effect by the Financial Supervisory Commission (FSC)

The initial application of the amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers and the IFRSs endorsed and issued into effect by the FSC would not have any material impact on the Company’s accounting policies, except for the following:

Amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers

The amendments include additions of several accounting items and requirements for disclosures of impairment of non-financial assets as a consequence of the IFRSs endorsed and issued into effect by the FSC. In addition, as a result of the post implementation review of IFRSs in Taiwan, the amendments also include emphasis on certain recognition and measurement considerations and add requirements for disclosures of related party transactions and goodwill.

The amendments stipulate that other companies or institutions of which the chairman of the Board of Directors or president serves as the chairman of the Board of Directors or the president, or is the spouse or second immediate family of the chairman of the Board of Directors or president of the Company are deemed to have a substantive related party relationship, unless it can be demonstrated that no control, joint control, or significant influence exists. Furthermore, the amendments require the disclosure of the names of the related parties and the relationship with whom the Company has significant transaction. If the transaction or balance with a specific related party is 10% or more of the Company’s respective total transaction or balance, such transaction should be separately disclosed by the name of each related party.

The amendments also require additional disclosure if there is a significant difference between the actual operation after business combination and the expected benefit on acquisition date.

The disclosures of related party transactions will be enhanced when the above amendments are retrospectively applied in 2017, please refer to Note 33.

b. The Regulations Governing the Preparation of Financial Reports by Securities Issuers and the IFRSs endorsed by the FSC for application starting from 2018

endorsed by the FSC for application starting from 2018
New, Amended or Revised Standards and Interpretations Annual Improvements to IFRSs 2014-2016 Cycle Amendment to IFRS 2 “Classification and Measurement of Share-based Payment Transactions” Amendments to IFRS 4 “Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts” IFRS 9 “Financial Instruments” Amendments to IFRS 9 and IFRS 7 “Mandatory Effective Date of IFRS 9 and Transition Disclosures” IFRS 15 “Revenue from Contracts with Customers” Amendments to IFRS 15 “Clarifications to IFRS 15 Revenue from Contracts with Customers” Amendment to IAS 7 “Disclosure Initiative” Amendments to IAS 12 “Recognition of Deferred Tax Assets for Unrealized Losses” Amendments to IAS 40 “Transfers of Investment Property” IFRIC 22 “Foreign Currency Transactions and Advance Consideration”	Effective Date Announced by IASB (Note 1)
	Note 2 January 1, 2018 January 1, 2018 January 1, 2018 January 1, 2018 January 1, 2018 January 1, 2018 January 1, 2017 January 1, 2017 January 1, 2018 January 1, 2018

endorsed by the FSC for application starting from 2018

New, Amended or Revised Standards and Interpretations
Annual Improvements to IFRSs 2014-2016 Cycle

Amendment to IFRS 2 “Classification and Measurement of
Share-based Payment Transactions”

Amendments to IFRS 4 “Applying IFRS 9 Financial Instruments with
IFRS 4 Insurance Contracts”

IFRS 9 “Financial Instruments”

Amendments to IFRS 9 and IFRS 7 “Mandatory Effective Date of
IFRS 9 and Transition Disclosures”

IFRS 15 “Revenue from Contracts with Customers”

Amendments to IFRS 15 “Clarifications to IFRS 15 Revenue from
Contracts with Customers”

Amendment to IAS 7 “Disclosure Initiative”

Amendments to IAS 12 “Recognition of Deferred Tax Assets for
Unrealized Losses”

Amendments to IAS 40 “Transfers of Investment Property”

IFRIC 22 “Foreign Currency Transactions and Advance
Consideration”

Effective Date
Announced by IASB (Note 1)

Note 2
January 1, 2018
January 1, 2018
January 1, 2018
January 1, 2018
January 1, 2018
January 1, 2018
January 1, 2017
January 1, 2017
January 1, 2018
January 1, 2018

Note 1: Unless stated otherwise, the above New IFRSs are effective for annual periods beginning on or after their respective effective dates.
Note 2: The amendment to IFRS 12 is retrospectively applied for annual periods beginning on or after January 1, 2017; the amendment to IAS 28 is retrospectively applied for annual periods beginning on or after January 1, 2018.

The initial application of the above New IFRSs, whenever applied, would not have any material impact on the Company’s accounting policies, except for the following:

1) IFRS 9 “Financial Instruments” and related amendment

Recognition, measurement and impairment of financial assets

With regards to financial assets, all recognized financial assets that are within the scope of IAS 39 “Financial Instruments: Recognition and Measurement” are subsequently measured at amortized cost or fair value. Under IFRS 9, the requirement for the classification of financial assets is stated below.

For the Company’s debt instruments that have contractual cash flows that are solely payments of principal and interest on the principal amount outstanding, their classification and measurement are as follows:

a) For debt instruments, if they are held within a business model whose objective is to collect the contractual cash flows, the financial assets are measured at amortized cost and are assessed for impairment continuously with impairment loss recognized in profit or loss, if any. Interest revenue is recognized in profit or loss by using the effective interest method;
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b) For debt instruments, if they are held within a business model whose objective is achieved by both the collecting of contractual cash flows and the selling of financial assets, the financial assets are measured at fair value through other comprehensive income (FVTOCI) and are assessed for impairment. Interest revenue is recognized in profit or loss by using the effective interest method, and other gain or loss shall be recognized in other comprehensive income, except for impairment gains or losses and foreign exchange gains and losses. When the debt instruments are derecognized or reclassified, the cumulative gain or loss previously recognized in other comprehensive income is reclassified from equity to profit or loss.

Except for the above, all other financial assets are measured at fair value through profit or loss. However, the Company may make an irrevocable election to present subsequent changes in the fair value of an equity investment (that is not held for trading) in other comprehensive income, with only dividend income generally recognized in profit or loss. No subsequent impairment assessment is required, and the cumulative gain or loss previously recognized in other comprehensive income cannot be reclassified from equity to profit or loss.

IFRS 9 requires impairment loss on financial assets to be recognized by using the “Expected Credit Losses Model”. The loss allowance is required for financial assets measured at amortized cost, investments in debt instruments measured at FVTOCI, lease receivables, contract assets arising from IFRS 15 “Revenue from Contracts with Customers”, certain written loan commitments and financial guarantee contracts. A loss allowance for the 12-month expected credit losses is required for a financial asset if its credit risk has not increased significantly since initial recognition. A loss allowance for full lifetime expected credit losses is required for a financial asset if its credit risk has increased significantly since initial recognition and is not low. However, a loss allowance for full lifetime expected credit losses is required for trade receivables that do not constitute a financing transaction.

For purchased or originated credit-impaired financial assets, the Company takes into account the expected credit losses on initial recognition in calculating the credit-adjusted effective interest rate. Subsequently, any changes in expected losses are recognized as a loss allowance with a corresponding gain or loss recognized in profit or loss.

Hedge accounting

The main changes in hedge accounting amended the application requirements for hedge accounting to better reflect the entity’s risk management activities. Compared with IAS 39, the main changes include: (1) enhancing types of transactions eligible for hedge accounting, specifically broadening the risks eligible for hedge accounting of non-financial items; (2) changing the way the hedging cost of derivative instruments are accounted for to reduce profit or loss volatility; and (3) replacing retrospective effectiveness assessment with the principle of economic relationship between the hedging instrument and the hedged item.

2) IFRS 15 “Revenue from Contracts with Customers” and related amendment

IFRS 15 establishes principles for recognizing revenue that apply to all contracts with customers, and will supersede IAS 18 “Revenue”, IAS 11 “Construction Contracts” and a number of revenue-related interpretations.

When applying IFRS 15, the Company recognizes revenue by applying the following steps:

Identify the contract with the customer;
Identify the performance obligations in the contract;
Determine the transaction price;
Allocate the transaction price to the performance obligations in the contract; and
Recognize revenue when the Company satisfies a performance obligation.
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3) IFRIC 22“Foreign Currency Transactions and Advance Consideration”

IAS 21 stipulated that a foreign currency transaction shall be recorded on initial recognition in the functional currency by applying to the foreign currency amount the spot exchange rate between the functional currency and the foreign currency at the date of the transaction. IFRIC 22 further explains that the date of the transaction is the date on which an entity recognizes a non-monetary asset or non-monetary liability from payment or receipt of advance consideration. If there are multiple payments or receipts in advance, the entity shall determine the date of the transaction for each payment or receipt of advance consideration.

The Company will apply IFRIC 22 prospectively to all assets, expenses and income recognized on or after January 1, 2018 within the scope of the Interpretation.

Except for the above impact, as of the date the consolidated financial statements were authorized for issue, the Company is continuously assessing the possible impact that the application of other standards and interpretations will have on the Company’s financial position and financial performance, and will disclose the relevant impact when the assessment is completed.

c. New IFRSs in issue but not yet endorsed and issued into effect by the FSC

New, Amended or Revised Standards and Interpretations Amendments to IFRS 9 “Prepayments Features with Negative Compensation” Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets between an Investor and its Associate or Joint Venture” IFRS 16 “Leases” IFRS 17 “Insurance Contracts” Amendments to IAS 28 “Long-term Interests in Associates and Joint Ventures” IFRIC 23 “Uncertainty Over Income Tax Treatments”	Effective Date Announced by IASB (Note)
	January 1, 2019 To be determined by IASB January 1, 2019 January 1, 2021 January 1, 2019 January 1, 2019

New, Amended or Revised Standards and Interpretations
Amendments to IFRS 9 “Prepayments Features with Negative
Compensation”

Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets
between an Investor and its Associate or Joint Venture”

IFRS 16 “Leases”

IFRS 17 “Insurance Contracts”

Amendments to IAS 28 “Long-term Interests in Associates and Joint
Ventures”

IFRIC 23 “Uncertainty Over Income Tax Treatments”

Effective Date
Announced by IASB (Note)

January 1, 2019
To be determined by IASB
January 1, 2019
January 1, 2021
January 1, 2019
January 1, 2019

Note: Unless stated otherwise, the above New IFRSs are effective for annual periods beginning on or after their respective effective dates.

The initial application of the above New IFRSs, whenever applied, would not have any material impact on the Company’s accounting policies, except for the following:

1) IFRS 16 “Leases”

IFRS 16 sets out the accounting standards for leases that will supersede IAS 17 and a number of related interpretations.

Under IFRS 16, if the Company is a lessee, it shall recognize right-of-use assets and lease liabilities for all leases on the consolidated balance sheets except for low-value and short-term leases. The Company may elect to apply the accounting method similar to the accounting for operating lease under IAS 17 to the low-value and short-term leases. On the consolidated statements of comprehensive income, the Company should present the depreciation expense charged on the right-of-use asset separately from interest expense accrued on the lease liability; interest is computed by using effective interest method. On the consolidated statements of cash flows, cash payments for the principal portion of the lease liability are classified within financing activities; cash payments for interest portion are classified within operating activities.

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The application of IFRS 16 is not expected to have a material impact on the accounting of the Company as lessor.

When IFRS 16 becomes effective, the Company may elect to apply this Standard either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of the initial application of this Standard recognized at the date of initial application.

2) IFRIC 23 “Uncertainty Over Income Tax Treatments”

IFRIC 23 clarifies that when there is uncertainty over income tax treatments, the Company should assume that the taxation authority will have full knowledge of all related information when making related examinations. If the Company concludes that it is probable that the taxation authority will accept an uncertain tax treatment, the Company should determine the taxable profit, tax bases, unused tax losses, unused tax credits or tax rates consistently with the tax treatments used or planned to be used in its income tax filings. If it is not probable that the taxation authority will accept an uncertain tax treatment, the Company should make estimates using either the most likely amount or the expected value of the tax treatment, depending on which method the entity expects to better predict the resolution of the uncertainty. The Company has to reassess its judgments and estimates if facts and circumstances change.

On initial application the Company shall apply IFRIC 23 either retrospectively to each prior reporting period presented, if this is possible without the use of hindsight, or retrospectively with the cumulative effect of the initial application of IFRIC 23 recognized at the date of initial application.

4. SIGNIFICANT ACCOUNTING POLICIES

Statement of Compliance

These interim consolidated financial statements have been prepared in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and IAS 34 “Interim Financial Reporting” as endorsed and issued into effect by the FSC. Disclosure information included in these interim consolidated financial statements is less than the disclosure information required in a complete set of annual financial statements.

For readers’ convenience, the accompanying consolidated financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. If inconsistencies arise between the English version and the Chinese version or if differences arise in the interpretations between the two versions, the Chinese version of the consolidated financial statements shall prevail. However, the accompanying consolidated financial statements do not include the English translation of the additional footnote disclosures that are not required under accounting principles and practices generally applied in the Republic of China but are required by the Securities and Futures Bureau for their oversight purposes.

Basis of Consolidation

See Note 15 for the detailed information of subsidiaries (including the percentage of ownership and main business).

12 -

Other Significant Accounting Policies

Except for the following, the accounting policies applied in these consolidated financial statements are consistent with those applied in the consolidated financial statements for the year ended December 31, 2016. For the summary of other significant accounting policies, please refer to the consolidated financial statements for the year ended December 31, 2016.

a. Retirement benefits

Pension cost for an interim period is calculated on a year-to-date basis by using the actuarially determined pension cost rate at the end of the prior financial year, adjusted for significant market fluctuations since that time and for significant plan amendments, settlements, or other significant one-off events.

b. Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax. Interim period income taxes are assessed on an annual basis and calculated by applying to an interim period’s pre-tax income the tax rate that would be applicable to expected total annual earnings.

c. Business combinations

The acquisition of businesses is accounted for using the acquisition method. Acquisition-related costs are generally recognized in profit or loss as they are incurred.

Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity interests in the acquiree over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed.

Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the entity’s net assets in the event of liquidation may be initially measured either at fair value or at the non-controlling interests’ proportionate share of the recognized amounts of the acquiree’s identifiable net assets. The choice of the measurement basis is made on a transaction-by-transaction basis. Other types of non-controlling interests are measured at fair value.

If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted retrospectively during the measurement period, or additional assets or liabilities are recognized, to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the amounts recognized as of that date.

5. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of the Company’s accounting policies, management is required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

13 -
a. Accrued marketing and advertising expenses

The Company recognizes sale of goods as the conditions are met. The related marketing and advertising expenses recognized as reduction of sales amount or as current expenses are estimated on the basis of agreement, past experience and any known factors. The Company reviews the reasonableness of the estimation periodically.

As of September 30, 2017, December 31, 2016 and September 30, 2016, the carrying amounts of accrued marketing and advertising expenses were NT$6,295,994 thousand, NT$9,791,579 thousand and NT$10,563,351 thousand, respectively.

b. Allowances for doubtful debts

Receivables are assessed for impairment at the end of each reporting period and considered impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the receivables, the estimated future cash flows of the asset have been affected.

As of September 30, 2017, December 31, 2016 and September 30, 2016, the carrying amounts of allowances for doubtful debts were NT$3,904,633 thousand, NT$4,187,999 thousand and NT$3,412,869 thousand, respectively.

c. Impairment of tangible and intangible assets other than goodwill

The Company measures the useful life of individual assets and the probable future economic benefits in a specific asset group, which depends on subjective judgment, asset characteristics and industry, during the impairment testing process. Any change in accounting estimates due to economic circumstances and business strategies might cause material impairment in the future.

d. Valuation of inventories

Inventories are measured at the lower of cost or net realizable value. Judgment and estimation are applied in the determination of net realizable value at the end of reporting period.

Inventories are usually written down to net realizable value item by item if those inventories are damaged, have become wholly or partially obsolete, or if their selling prices have declined.

As of September 30, 2017, December 31, 2016 and September 30, 2016, the carrying amounts of inventories were NT$15,886,685 thousand, NT$14,163,571 thousand and NT$19,257,388 thousand, respectively.

e. Realization of deferred tax assets

Deferred tax assets should be recognized only to the extent that the entity has sufficient taxable temporary differences or there is convincing other evidence that sufficient taxable profit will be available. The management applies judgment and accounting estimates to evaluate the realization of deferred tax assets. The management takes expected sales growth, profit rate, duration of exemption, tax credits, tax planning and etc. into account to make judgment and estimates. Any change in global economy, industry environment and regulations might cause material adjustments to deferred tax assets.

As of September 30, 2017, December 31, 2016 and September 30, 2016, the carrying amounts of deferred tax assets were NT$8,985,569 thousand, NT$8,957,876 thousand and NT$8,808,502 thousand, respectively.

f. Estimates of warranty provision

The Company estimates cost of product warranties at the time the revenue is recognized.

14 -

The estimates of warranty provision are on the basis of sold products and the amount of expenditure required for settlement of present obligation at the end of the reporting period.

The Company might recognize additional provisions because of the possible complex intellectual product malfunctions and the change of local regulations, articles and industry environment.

As of September 30, 2017, December 31, 2016 and September 30, 2016, the carrying amounts of warranty provision were NT$2,561,491 thousand, NT$3,010,969 thousand and NT$4,367,872 thousand, respectively.

6. CASH AND CASH EQUIVALENTS

September 30, 2017 Cash on hand $ 1,846 Checking accounts and demand deposits 13,935,823 Time deposits (with original maturities less than three months) 1,008,595 $ 14,946,264	December 31, 2016 September 30, 2016 $ 1,811 $ 1,807 24,722,314 20,643,846 5,356,092 9,597,677 $ 30,080,217 $ 30,243,330

7. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS

	September 30,	September 30,	December 31,	December 31,	September 30,	September 30,
		2017		2016		2016
Financial assets held for trading
Derivatives financial assets (not under hedge
accounting)
Forward exchange contracts	$	95,099	$ 143,642		$	18,017
Financial liabilities held for trading
Derivatives financial liabilities (not under hedge
accounting)
Forward exchange contracts	$	142,698	$ 133,420		$	167,137

The Company entered into forward exchange contracts to manage exposures due to exchange rate fluctuations of foreign currency denominated assets and liabilities. At the end of the reporting period, outstanding forward exchange contracts not under hedge accounting were as follows:

Forward Exchange Contracts

				Notional Amount	Notional Amount
	Buy/Sell	Currency	Maturity Date	(In Thousands)
September 30, 2017
Forward exchange contracts	Sell	USD/NTD	2017.10.20-2017.11.17	USD	100,000
Forward exchange contracts	Sell	JPY/USD	2017.10.27-2017.11.24	JPY	3,800,000
Forward exchange contracts	Sell	GBP/USD	2017.10.20	GBP	6,000
					(Continued)

15 -

September 30, 2017

Forward exchange contracts Forward exchange contracts Forward exchange contracts Forward exchange contracts Forward exchange contracts Forward exchange contracts Forward exchange contracts Forward exchange contracts Forward exchange contracts

December 31, 2016

September 30, 2016

Foreign exchange contracts Foreign exchange contracts Foreign exchange contracts Foreign exchange contracts Foreign exchange contracts Foreign exchange contracts Foreign exchange contracts Foreign exchange contracts Foreign exchange contracts

			Notional Amount	Notional Amount
Buy/Sell	Currency	Maturity Date	(In Thousands)
Sell	CAD/USD	2017.10.18-2017.10.20	CAD	3,500
Sell	EUR/USD	2017.10.13	EUR	2,000
Buy	RMB/USD	2017.10.13-2017.11.22	RMB	954,922
Buy	USD/NTD	2017.10.13-2017.11.24	USD	644,500
Buy	SGD/USD	2017.10.20	SGD	242,171
Buy	JPY/USD	2017.10.25	JPY	2,718,335
Buy	EUR/USD	2017.10.25	EUR	12,000
Buy	AUD/USD	2017.11.20	AUD	6,000
Buy	GBP/USD	2017.10.25	GBP	2,000
Sell	USD/NTD	2017.01.06-2017.01.25	USD	120,000
Sell	EUR/USD	2017.01.06	EUR	40,000
Sell	JPY/USD	2017.01.06-2017.01.25	JPY	5,085,622
Sell	GBP/USD	2017.01.06-2017.01.20	GBP	6,000
Buy	RMB/USD	2017.01.06-2017.01.25	RMB	926,817
Buy	CAD/USD	2017.01.11-2017.01.25	CAD	5,000
Buy	USD/NTD	2017.01.06-2017.02.02	USD	387,500
Buy	SGD/USD	2017.01.06-2017.01.25	SGD	252,579
Buy	AUD/USD	2017.01.06-2017.01.11	AUD	4,700
Sell	GBP/USD	2016.10.07-2016.10.19	GBP	4,000
Sell	JPY/USD	2016.10.21-2016.11.09	JPY	635,623
Sell	USD/TWD	2016.10.07-2016.10.14	USD	30,000
Buy	USD/TWD	2016.10.05-2016.11.25	USD	562,362
Buy	SGD/USD	2016.10.26-2016.11.18	SGD	234,023
Buy	AUD/USD	2016.10.26-2016.11.18	AUD	7,600
Buy	EUR/TWD	2016.10.07	EUR	15,000
Buy	CAD/USD	2016.10.26	CAD	4,500
Buy	RMB/USD	2016.10.14-2016.11.18	RMB	989,526
				(Concluded)

8. DERIVATIVE FINANCIAL INSTRUMENTS FOR HEDGING

The Company supplied products to clients in Japan and signed forward exchange contracts to avoid its exchange rate exposure due to the forecast sales. Those forward exchange contracts were designated as cash flow hedges.

16 -

Gains and losses of hedging instruments were included in the following line items in the consolidated statements of comprehensive income:

Operating revenues Other gains and losses	For the Three Months Ended September 30 2017 2016 $ (4,389) $ - - - $ (4,389) $ -	For the Three Months Ended September 30 2017 2016 $ (4,389) $ - - - $ (4,389) $ -	For the Nine Months Ended September 30	For the Nine Months Ended September 30	For the Nine Months Ended September 30
		2017 $ (4,389) - $ (4,389)		2017 $ (4,389) 3,538 $ (851)	2016 $ (40,299) 2,056 $ (38,243)

9. FINANCIAL ASSETS MEASURED AT COST

	September 30,	September 30,	December 31,	December 31,	September 30,	September 30,
		2017		2016		2016
Domestic unlisted equity investment	$	643,961	$	643,961	$	643,961
Overseas unlisted equity investment		1,867,895		2,013,101		1,914,242
Overseas unlisted mutual funds		697,674		706,674		663,301
Derivative financial instruments - convertible
bonds		114,380		-		-
Derivative financial instruments - overseas
warrants		14,241		-		-
	$	3,338,151	$	3,363,736	$	3,221,504
Classified according to financial asset
measurement categories
Financial assets at fair value through profit or
loss	$	128,621	$	-	$	-
Available-for-sale financial assets		3,209,530		3,363,736		3,221,504
	$	3,338,151	$	3,363,736	$	3,221,504

Management believed that the above unlisted equity investments, mutual funds and derivative financial instruments held by the Company, whose fair value cannot be reliably measured due to the range of reasonable fair value estimates was so significant; therefore, they were measured at cost less impairment at the end of reporting period.

10. OTHER CURRENT FINANCIAL ASSETS

	September 30,	December 31,	September 30,
	2017	2016	2016
Time deposits with original maturities more than
three months	$ 8,025,496	$ 5,750,450	$ 4,105,821

For details of pledged other current financial assets, please see Note 34.

17 -

11. TRADE RECEIVABLES AND OTHER RECEIVABLES

September 30,
2017
Trade and overdue receivables
Trade receivables
$ 10,407,436
Trade receivables - related parties
974
Overdue receivables
1,840,947
Less: Allowances for impairment loss - trade
receivables
(509,052)
Less: Allowances for impairment loss - overdue
receivables

(1,840,947)

$ 9,899,358

Current
$ 9,899,358
Non-current

-

$ 9,899,358

Other receivables
Receivables from disposal of investments
$ 1,328,747
Interest receivables
262,049
VAT refund receivables
154,468
Others
86,069
Less: Allowances for impairment loss

(1,554,634)

$ 276,699

Current
$ 276,699
Non-current

-

$ 276,699

December 31,
2016
September 30,
2016
$ 16,818,037 $ 18,459,946

15,720
11

1,840,947
1,840,947

(871,922)
(871,922)

(1,840,947)

(1,840,947)

$ 15,961,835
$ 17,588,035
$ 15,961,835 $ 17,588,035

-

-
$ 15,961,835
$ 17,588,035

$ 1,260,795 $ 1,238,832

234,355
225,409

113,839
235,361

34,667
92,222

(1,475,130)

(700,000)

$ 168,526
$ 1,091,824

$ 168,526 $ 342,391

-

749,433

$ 168,526
$ 1,091,824

Trade Receivables

The credit period on sales of goods is 30-75 days. No interest is charged on trade receivables before the due date. Thereafter, interest is charged at 1-18% per annum on the outstanding balance, which is considered to be non-controversial, to some of customers. In determining the recoverability of a trade receivable, the Company considered any change in the credit quality of the trade receivable since the date credit was initially granted to the end of the reporting period. For customers with low credit risk, the Company has recognized an allowance for doubtful debts of 1-5% against receivables past due beyond 31-90 days and of 5-100% against receivables past due beyond 91 days. For customers with high credit risk, the Company has recognized an allowance for impairment loss of 10-100% against receivables past due more than 31 days.

Before accepting any new customer, the Company’s Department of Financial and Accounting evaluates the potential customer’s credit quality and defines credit limits and scorings by customer. The factor of overdue attributed to customers are reviewed once a week and the Company evaluates the financial performance periodically for the adjustment of credit limits.

The concentration of credit risk is limited due to the fact that the customer base is diverse.

18 -

As of the reporting date, the Company had no receivables that are past due but not impaired.

Trade receivables aged over one year were reclassified as overdue receivables which was recognized as long-term receivables.

Aging of trade receivables

	September 30,	September 30,	December 31,	September 30,
		2017	2016	2016
1-90 days	$	477,307	$ 2,120,237	$ 1,728,582
91-180 days		140,128	445,727	91,521
Over 181 days		274,332	323,945	2,373,004
	$	891,767	$ 2,889,909	$ 4,193,107

The above aging schedule was based on the past due date.

Aging of impaired trade receivables

	September	September	30,	December 31,	September	30,
		2017		2016	2016
1-90 days	$	382,715		$ 1,887,581	$ 1,480,238
91-180 days			-	130,406		-
Over 181 days			-	-		-
	$	382,715		$ 2,017,987	$ 1,480,238

The above aging of trade receivables after deducting the allowance for impairment loss were presented based on the past due date.

The movements of the allowance for doubtful trade receivables and overdue receivables were as follows:

Balance, beginning of period Less: Impairment loss reversed Less: Amounts written off during the period as uncollectible Less: Effect of foreign currency exchange differences Balance, end of period		For the Nine Months Ended September 30
		2017 2016 $ 2,712,869 $ 3,016,914 (362,870) (299,951) - (4,025) - (69) $ 2,349,999 $ 2,712,869

Other Receivables

Receivable from disposal of investments is derived from sale of shares of Saffron Media Group Ltd. in 2013. According to the agreement, the principle and interest will be received in full in September 2018 and could be repaid by the buyer in whole or in part, at any time.

Others were primarily prepayments on behalf of vendors or customers and grants from suppliers.

19 -

The movements of the allowance for doubtful other receivables were as follows:

Balance, beginning of period Add: Impairment loss recognized Less: Effect of foreign currency exchange differences Balance, end of period		For the Nine Months Ended September 30	For the Nine Months Ended September 30
		2017 $ 1,475,130 - 79,504 $ 1,554,634	2016 $ - 700,000 - $ 700,000

12. INVENTORIES

	September 30,	September 30,	December 31,	December 31,	September 30,	September 30,
		2017		2016		2016
Finished goods	$	2,709,568	$	2,468,223	$	3,330,420
Work-in-process		1,232,221		233,952		1,772,726
Semi-finished goods		2,404,323		2,168,606		2,651,738
Raw materials		9,406,694		9,125,604		11,007,745
Inventory in transit		133,879		167,186		494,759
	$	15,886,685	$	14,163,571	$	19,257,388

The cost of inventories recognized as operating costs for the nine months ended September 30, 2017 and 2016 included inventory write-downs of NT$2,772,973 thousand and NT$2,518,889 thousand, respectively.

13. PREPAYMENTS

	September 30,	December 31,	September 30,
	2017	2016	2016
Royalty	$ 2,749,927	$ 3,109,677	$ 5,182,403
Net input VAT	501,223	727,750	784,809
Prepaid equipment	58,895	75,954	67,038
Prepayments to suppliers	9,741	17,431	79,969
Land use right	-	107,732	110,116
Others	850,879	530,831	549,273
	$ 4,170,665	$ 4,569,375	$ 6,773,608
Current	$ 1,822,999	$ 1,833,499	$ 2,623,415
Non-current	2,347,666	2,735,876	4,150,193
	$ 4,170,665	$ 4,569,375	$ 6,773,608

Prepayments for royalty were primarily for getting royalty right and were classified as current or non-current in accordance with their nature. For details of content of contracts, please see Note 37.

The land use right was reclassified as non-current assets held for sale in March 2017. For the detail, please see Note 14.

20 -

14. NON-CURRENT ASSETS HELD FOR SALE

	September 30,	December	31,	September	30,
	2017	2016		2016
Land and buildings held for sale	$ 1,640,881	$	-	$	-

On December 29, 2015, the HTC’s Board of Directors resolved to sell a plot of land and buildings to Inventec Corporation for a total amount of NT$6,060,000 thousand. The Company had completed the disposal and transferred its controlling right over the subject properties to the acquirer in February 2016. For the amount of gains and losses for disposal NT$2,091,594 thousand, see Note 26 for details.

On March 15, 2017, HTC’ Board of Directors passed a resolution to sell land and factory in Shanghai to Shanghai Xingbao Information Technology Co., Ltd. with the amount of RMB630,000 thousand. The trading amount of RMB315,000 thousand (NT$1,388,243 thousand) has been collected and recognized as advance receipts. While the transferring process has not yet been completed, the assets was recognized as non-current assets held for sale without impairment loss valuated as of September 30, 2017.

15. SUBSIDIARIES

a. Subsidiary included in consolidated financial statements

The consolidated entities as of September 30, 2017, December 31, 2016 and September 30, 2016 were as follows:

Investor
Investee
Main Businesses
HTC Corporation
H.T.C. (B.V.I.) Corp.
International holding company
and general investing
activities
Communication Global
Certification Inc.
Import of controlled
telecommunications
radio-frequency devices and
software services
High Tech Computer Asia
Pacific Pte. Ltd.
International holding company;
marketing, repair and
after-sales services
HTC Investment Corporation
General investing activities
PT. High Tech Computer
Indonesia
Marketing, repair and
after-sales services
HTC I Investment Corporation General investing activities
HTC Holding Cooperatief U.A. International holding company
HTC Investment One (BVI)
Corporation
Holding S3 Graphics Co., Ltd.
and general investing
activities
HTC Investment (BVI)
Corporation
General investing activities
HTC VIVE Holding (BVI)
Corp.
International holding company
HTC VIVE Investment (BVI)
Corp.
General investing activities
DeepQ Holding (BVI) Corp.
International holding company
HTC VR Content (BVI) Corp.
〃
HTC Smartphone (BVI) Corp.
〃
H.T.C. (B.V.I.) Corp.
High Tech Computer Corp.
(Suzhou)
Manufacture and sale of smart
mobile devices
High Tech Computer
Asia Pacific Pte.
HTC (Australia and New
Zealand) PTY. Ltd.
Marketing, repair and
after-sales services
Ltd.
HTC Philippines Corporation
〃
PT. High Tech Computer
Indonesia
〃
HTC (Thailand) Limited
〃
HTC India Private Ltd.
〃
HTC Malaysia Sdn. Bhd.
〃
HTC Communication Co., Ltd. Manufacture and sale of smart
mobile devices and
after-sales services % of Ownership
September 30,
2017
December 31,
2016
September 30,
2016
Remark
100.00
100.00
100.00
-
100.00
100.00
100.00
-
100.00
100.00
100.00
-
100.00
100.00
100.00
-
1.00
1.00
1.00
-
100.00
100.00
100.00
-
0.01
0.01
0.01
-
100.00
100.00
100.00
-
100.00
100.00
100.00
-
100.00
100.00
100.00
-
100.00
100.00
100.00
-
100.00
-
-
1)
100.00
-
-
3)
100.00
-
-
3)
100.00
100.00
100.00
-
100.00
100.00
100.00
-
99.99
99.99
99.99
-
99.00
99.00
99.00
-
100.00
100.00
100.00
-
99.00
99.00
99.00
-
100.00
100.00
100.00
-
100.00
100.00
100.00
-

(Continued)

21 -

Investor
Investee
Main Businesses
High Tech Computer
Asia Pacific Pte.
Ltd.
HTC HK, Limited
International holding company;
marketing, repair and
after-sales services
HTC Holding Cooperatief U.A. International holding company
HTC Communication
Technologies (SH)
Design, research and
development of application
software
HTC Vietnam Services One
Member Limited Liability
Company
Marketing, repair and
after-sales services
HTC Myanmar Company
Limited
〃
HTC Investment
Corporation
Yoda Co., Ltd.
Operation of restaurant
business, parking lot and
building cleaning services
HTC Investment One
(BVI) Corporation
S3 Graphics Co., Ltd.
Design, research and
development of graphics
technology
HTC Communication
Technologies (SH)
HTC Communication (BJ) Tech
Co.
Design, research and
development of application
software
HTC HK, Limited
HTC Corporation (Shanghai
WGQ)
Smart mobile devices
examination and after-sale
services and technique
consultations
HTC Electronics (Shanghai)
Co., Ltd.
Manufacture and sale of smart
mobile devices
HTC Myanmar Company
Limited
Marketing, repair and
after-sales services
HTC Holding
Cooperatief U.A.
HTC Netherlands B.V.
International holding company;
marketing, repair and
after-sales services
HTC India Private Ltd.
Marketing, repair and
after-sales services
HTC South Eastern Europe
Limited Liability Company
〃
HTC Communication Solutions
Mexico, S.A DE C.V.
〃
HTC Servicios DE Operacion
Mexico, S.A DE C.V.
Human resources management
HTC Netherlands B.V. HTC EUROPE CO., LTD.
International holding company
Marketing, repair and
after-sales services
HTC BRASIL
Marketing, repair and
after-sales services
HTC Belgium BVBA/SPRL
〃
HTC NIPPON Corporation
Sale of smart mobile devices
HTC FRANCE
CORPORATION
International holding company;
marketing, repair and
after-sales services
HTC South Eastern Europe
Limited liability Company
Marketing, repair and
after-sales services
HTC Nordic ApS.
〃
HTC Italia SRL
〃
HTC Germany GmbH
〃
HTC Iberia, S.L.
〃
HTC Poland sp. z.o.o.
〃
HTC Communication Canada,
Ltd.
〃
HTC Communication Sweden
AB
〃
HTC Luxembourg S.a.r.l.
Online/download media
services
HTC Middle East FZ-LLC
Marketing, repair and
after-sales services
HTC Communication Solutions
Mexico, S.A DE C.V.
〃
HTC Servicios DE Operacion
Mexico, S.A DE C.V.
Human resources management
HTC Czech RC s.r.o.
Smart mobile devices
examination and after-sale
services and technique
consultations
HTC EUROPE CO.,
LTD.
HTC America Holding Inc.
International holding company % of Ownership
September 30,
2017
December 31,
2016
September 30,
2016
Remark
100.00
100.00
100.00
-
99.99
99.99
99.99
-
100.00
100.00
100.00
-
100.00
100.00
100.00
-
99.00
99.00
99.00
-
100.00
100.00
100.00
-
100.00
100.00
100.00
-
100.00
100.00
100.00
-
100.00
100.00
100.00
-
100.00
100.00
100.00
-
1.00
1.00
1.00
-
100.00
100.00
100.00
-
1.00
1.00
1.00
-
0.67
0.67
0.67
-
1.00
1.00
1.00
-
1.00
1.00
1.00
-
100.00
100.00
100.00
-
99.99
99.99
99.99
-
100.00
100.00
100.00
-
100.00
100.00
100.00
-
100.00
100.00
100.00
-
99.33
99.33
99.33
-
100.00
100.00
100.00
-
100.00
100.00
100.00
-
100.00
100.00
100.00
-
100.00
100.00
100.00
-
100.00
100.00
100.00
-
100.00
100.00
100.00
-
100.00
100.00
100.00
-
100.00
100.00
100.00
-
100.00
100.00
100.00
-
99.00
99.00
99.00
-
99.00
99.00
99.00
-
100.00
100.00
100.00
-
100.00
100.00
100.00
-
(Continued)

22 -

Investor
Investee
Main Businesses
HTC America Holding HTC America Inc.
Sale of smart mobile devices
Inc.
One & Company Design, Inc.
Design, research and
development of application
software
HTC America Innovation Inc.
〃
HTC America Content
Services, Inc.
Online/download media
services
Dashwire, Inc.
Design and management of
cloud synchronization
technology
Inquisitive Minds, Inc.
Development and sale of digital
education platform
HTC VIVE Holding
(BVI) Corp.
HTC VIVE TECH (BVI) Corp. International holding company
HTC VIVE TECH
(BVI) Corp.
HTC VIVE TECH Corp.
Research, development and sale
of virtual reality devices
HTC VIVE TECH (Beijing)
〃
HTC VIVE TECH (HK)
Limited
〃
HTC VIVE TECH
(HK) Limited
HTC VIVE TECH (UK)
Limited
Research, development and sale
of virtual reality devices
DeepQ Holding (BVI)
Corp.
DeepQ (BVI) Corp.
International holding company
DeepQ (BVI) Corp.
DeepQ Technology Corp.
Medical technology and health
care
HTC Investment
(BVI) Corporation
VRChat, Inc.
Development of virtual reality
contents
VRChat, Inc.
VRChat Ca. Development Inc.
Development of virtual reality
contents
HTC VR Content
(BVI) Corp.
Uomo vitruviano Corp.
Development of virtual reality
contents % of Ownership
September 30,
2017
December 31,
2016
September 30,
2016
Remark
100.00
100.00
100.00
-
100.00
100.00
100.00
-
100.00
100.00
100.00
-
100.00
100.00
100.00
-
100.00
100.00
100.00
-
100.00
100.00
100.00
-
100.00
100.00
100.00
-
100.00
100.00
100.00
-
100.00
-
-
2)
100.00
-
-
2)
100.00
-
-
2)
100.00
-
-
1)
100.00
-
-
2)
56.04
-
-
4)
100.00
-
-
4)
100.00
-
-
3)
(Concluded)

Remark:

1) DeepQ Holding (BVI) Corp. and DeepQ (BVI) Corp. were incorporated in March 2017.
2) HTC VIVE TECH (Beijing), HTC VIVE TECH (HK) Limited, HTC VIVE TECH (UK) Limited and DeepQ Technology Corp. were incorporated in June 2017.
3) HTC VR Content (BVI) Corp, HTC Smartphone (BVI) Corp. and Uomo vitruviano Corp. were incorporated in September 2017.
4) In August 2017, VRChat, Inc. and its subsidiary were included in consolidated financial statements for acquiring 56.04% equity interest by the Company. For details of the acquisition, please see Note 29.
b. Subsidiary excluded from consolidated financial statements: None.
c. Details of subsidiaries that have material non-controlling interests: None.

16. INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD

	September 30,	December 31,	September 30,
	2017	2016	2016
Investment in associates	$ 431,924	$ 531,445	$ 521,370
Investment in joint ventures	-	-	-
	$ 431,924	$ 531,445	$ 521,370

23 -

Investments in Associate

	September 30,	September 30,	December 31,	December 31,	September 30,	September 30,
		2017		2016		2016
Unlisted equity investment
East West Artists, LLC	$	28,303	$	25,532	$	22,020
Steel Wool Games, Inc.		109,729		150,282		154,357
Surgical Theater, LLC		287,919		344,080		344,993
Gui Zhou Wei Ai Educational Technology Co.,
Ltd.		5,973		11,551		-
	$	431,924	$	531,445	$	521,370

As the end of the reporting periods, the percentage of ownership and voting rights in associates held by the Company were as follows:

	September 30,	December 31,	September 30,
Name of Associate	2017	2016	2016
East West Artists, LLC	30.00%	25.00%	25.00%
Steel Wool Games, Inc.	49.00%	49.00%	49.00%
Surgical Theater, LLC	16.68%	21.09%	21.09%
Gui Zhou Wei Ai Educational Technology Co.,
Ltd.	25.00%	25.00%	-

The Company acquired 25% equity interest in East West Artists, LLC for US$500 thousand in December 2014, and US$500 thousand in December 2015. In June 2017, the equity interest was increased to 30% after the Company’s making an additional investment of US$200 thousand.

In July 2015, the Company acquired 11.25% equity interest in Steel Wool Games, Inc. for US$300 thousand and such equity investment was recognized as financial assets measured at cost - non-current. In June 2016, the equity interest was increased to 49% after the Company’s making an additional investment of US$5,000 thousand. The Company’s management evaluates that the Company does exercise significant influence over Steel Wool Games, Inc. and therefore the subject equity investments are classified as an associate of the Company.

In September 2015, the Company acquired 12.30% equity interest in Surgical Theater, LLC for US$5,000 thousand and such equity investment was recognized as financial assets measured at cost - non-current. In August 2016, the equity interest was increased to 21.09% after the Company’s making an additional investment of US$6,000 thousand. In August 2017, the equity interest was decreased to 16.68% after the capital increase. The Company’s management evaluates that the Company does exercise significant influence over Surgical Theater, LLC and therefore the subject equity investments are classified as an associate of the Company.

In November 2016, the Company acquired 25% equity interest in Gui Zhou Wei Ai Educational Technology Co., Ltd. for RMB2,500 thousand with a total 25% equity interest that are accounted for under the equity method.

24 -

Aggregate information of associates that are not individually material:

The Company’s share of: Loss from continuing operations Other comprehensive income Total comprehensive loss for the period	For the Three Months Ended September 30 2017 2016 $ (11,491) $ (16,725) - - $ (11,491) $ (16,725)	For the Three Months Ended September 30 2017 2016 $ (11,491) $ (16,725) - - $ (11,491) $ (16,725)	For the Nine Months Ended September 30
		2017 $ (11,491) - $ (11,491)	2017 2016 $ (74,687) $ (20,343) - - $ (74,687) $ (20,343)

Investments accounted for by the equity method and the share of profit or loss and other comprehensive income of those investments were calculated based on the financial statements that have not been reviewed. The Company’s management believes there is no material impact arising from applying the equity method accounting or the calculation of the share of profit or loss and other comprehensive income, due to the investee entities’ financial statement were not been reviewed.

Investments in Joint Venture

	September	September	30,	December	December	31,	September	September	30,
		2017			2016			2016
Unlisted equity investments
Huada Digital Corporation	$		-	$		-	$		-

At the end of the reporting period, the proportion of ownership and voting rights in joint venture held by the Company were as follows:

	September 30,	December 31,	September 30,
Name of Joint Venture	2017	2016	2016
Huada Digital Corporation	-	-	-

The Company set up a subsidiary Huada Digital Corporation (“Huada”), whose main business is to provide software services, in December 2009. In October 2011, Chunghwa Telecom Co., Ltd. invested in Huada. In March 2012, Huada held a shareholders’ meeting and re-elected its directors and supervisors. As a result, the investment type was changed to joint venture and the Company continued to account for the subject equity investment under the equity method. The dissolution of Huada was approved in its shareholders’ meeting held in March 2016 and the date of dissolution was set on March 31, 2016. The liquidation process had been completed on July 31, 2016.

Aggregate information of joint venture that are not individually material:

The Company’s share of: Gain (loss) from continuing operations Other comprehensive income Total comprehensive loss for the period	For the Three Months Ended September 30 2017 2016 $ - $ 152 - - $ - $ 152	For the Three Months Ended September 30 2017 2016 $ - $ 152 - - $ - $ 152	For the Nine Months Ended September 30	For the Nine Months Ended September 30	For the Nine Months Ended September 30
		2017 $ - - $ -		2017 $ - - $ -	2016 $ (25,733) - $ (25,733)

25 -

Investments in joint venture accounted for by the equity method and the share of profit or loss and other comprehensive income of those investments were calculated based on the financial statements that have not been reviewed. The Company’s management believes there is no material impact arising from applying the equity method accounting or the calculation of the share of profit or loss and other comprehensive income, due to the investee entities’ financial statements were not been reviewed.

17. PROPERTY, PLANT AND EQUIPMENT

	September 30,	September 30,	December 31,	December 31,	September 30,	September 30,
		2017		2016		2016
Carrying amounts
Land	$	4,678,100	$	4,674,792	$	4,678,087
Buildings		5,309,527		5,473,812		5,537,828
Machinery and equipment		909,347		1,267,842		1,441,998
Other equipment		497,138		609,050		642,232

	$ 11,394,112 $ 12,025,496 $ 12,300,145

Movement of property, plant and equipment for the nine months ended September 30, 2017 and 2016 were as follows:

Cost Balance, beginning of period Additions Disposals Reclassification Effect of foreign currency exchange differences Balance, end of period Accumulated depreciation Balance, beginning of period Depreciation expenses Disposals Reclassification Effect of foreign currency exchange differences Balance, end of period Accumulated impairment Balance, beginning of period Disposals Reclassification Effect of foreign currency exchange differences Balance, end of period Net book value, end of period			2017
		Land $ 4,674,792 - - - 3,308 4,678,100 - - - - - - - - - - - $ 4,678,100	Buildings Machinery and Equipment $ 7,321,116 $ 13,614,889 30,151 99,968 - (158,301) - (59,186) 12,112 (41,243) 7,363,379 13,456,127 1,847,304 11,816,261 204,818 417,076 - (154,894) - (21,013) 1,730 (33,374) 2,053,852 12,024,056 - 530,786 - (9) - (7,868) - (185) - 522,724 $ 5,309,527 $ 909,347	Other Equipment $ 2,301,452 50,433 (25,904) - (27,149) 2,298,832 1,686,963 146,327 (21,936) - (15,067) 1,796,287 5,439 (3) - (29) 5,407 $ 497,138	Total $ 27,912,249 180,552 (184,205) (59,186) (52,972) 27,796,438 15,350,528 768,221 (176,830) (21,013) (46,711) 15,874,195 536,225 (12) (7,868) (214) 528,131 $ 11,394,112

26 -

Cost Balance, beginning of period Additions Disposals Reclassification Effect of foreign currency exchange differences Balance, end of period Accumulated depreciation Balance, beginning of period Depreciation expenses Disposals Reclassification Effect of foreign currency exchange differences Balance, end of period Accumulated impairment Balance, beginning of period Impairment loss Balance, end of period Net book value, end of period			2016
		Land $ 6,470,507 - (1,771,623) 6,587 (27,384) 4,678,087 - - - - - - - - - $ 4,678,087	Buildings Machinery and Equipment $ 7,361,368 $ 13,754,405 258,408 113,691 - (25,635) (201,433) (11,100) (99,551) (208,754) 7,318,792 13,622,607 1,590,155 10,912,770 201,507 937,454 - (19,714) - (6,443) (10,698) (164,421) 1,780,964 11,659,646 - 520,963 - - - 520,963 $ 5,537,828 $ 1,441,998	Other Equipment $ 2,507,338 84,086 (197,471) (1,173) (73,743) 2,319,037 1,634,316 243,640 (155,011) (547) (48,877) 1,673,521 3,284 - 3,284 $ 642,232	Total $ 30,093,618 456,185 (1,994,729) (207,119) (409,432) 27,938,523 14,137,241 1,382,601 (174,725) (6,990) (223,996) 15,114,131 524,247 - 524,247 $ 12,300,145

In order to reduce the cost and to improve the operational efficiency, the Company had sold part of the land in Taoyuan in May 2016 for NT$2,880,000 thousand and the net gain on disposal of the property was NT$1,108,377 thousand.

The above items of property, plant and equipment were depreciated on a straight-line basis over the estimated useful lives as follows:

Buildings 5-50 years Machinery and equipment 3-6 years Other equipment 3-5 years

The major component parts of the buildings held by the Company included plants, electro-powering machinery and engineering systems, etc., which were depreciated over their estimated useful lives of 40 to 50 years, 20 years and 5 to 10 years, respectively.

There were no capitalized interests for the nine months ended September 30, 2017 and 2016.

27 -

18. INVESTMENT PROPERTIES, NET

Movement of investment properties, net for the nine months ended September 30, 2017 and 2016 were as follows:

Cost Balance, beginning of period Eliminations Reclassification Effect of foreign currency exchange differences Balance, end of period Accumulated depreciation Balance, beginning of period Depreciation expense Eliminations Reclassification Effect of foreign currency exchange differences Balance, end of period Net book value, end of period	2017 $ 1,829,827 (1,504) (1,791,715) (36,608) - 302,826 5,936 (1,504) (301,200) (6,058) - $ -	2016 $ 1,992,798 - - (133,674) 1,859,124 284,309 34,804 - - (20,733) 298,380 $ 1,560,744

The investment properties were depreciated using the straight-line method over their estimated useful lives as follows:

Main buildings 50 years Air-conditioning 5-10 years Others 3-5 years

The Company passed a resolution to dispose investment properties in March 2017. As of September 30, 2017, the investment properties were reclassified as non-current assets held for sale since the transferring process has not yet been completed. For the detail, please refer to Note 14.

19. INTANGIBLE ASSETS

	September 30,	December 31,	September 30,
	2017	2016	2016
Carrying amounts
Patents	$ 2,473,085	$ 3,547,151	$ 3,742,031
Goodwill	65,962	-	-
Other intangible assets	150,908	331,205	403,838
	$ 2,689,955	$ 3,878,356	$ 4,145,869

28 -

Movements of intangible assets for the nine months ended September 30, 2017 and 2016 were as follows:

Cost Balance, beginning of period Additions Eliminations Effect of foreign currency exchange differences Balance, end of period Accumulated amortization Balance, beginning of period Amortization expenses Eliminations Effect of foreign currency exchange differences Balance, end of period Accumulated impairment Balance, beginning of period Effect of foreign currency exchange differences Balance, end of period Net book value, end of period Cost Balance, beginning of period Additions Effect of foreign currency exchange differences Balance, end of period Accumulated amortization Balance, beginning of period Amortization expenses Effect of foreign currency exchange differences Balance, end of period			2017	2017
		Patents $ 12,197,140 - - (591,150) 11,605,990 8,538,904 865,506 - (382,590) 9,021,820 111,085 - 111,085 $ 2,473,085	Goodwill Other Intangible Assets $ 684,668 $ 1,840,154 66,501 - - (7,093) (31,707) (33,814) 719,462 1,799,247 - 1,333,403 - 179,620 - (7,093) - (22,419) - 1,483,511 684,668 175,546 (31,168) (10,718) 653,500 164,828 $ 65,962 $ 150,908 2016		Total $ 14,721,962 66,501 (7,093) (656,671) 14,124,699 9,872,307 1,045,126 (7,093) (405,009) 10,505,331 971,299 (41,886) 929,413 $ 2,689,955
		Patents $ 12,434,890 - (509,701) 11,925,189 7,336,883 1,027,177 (291,987) 8,072,073	Goodwill $ 697,203 - (26,873) 670,330 - - - -	Other Intangible Assets $ 1,785,537 75,146 (34,321) 1,826,362 1,031,158 241,897 (21,145) 1,251,910	Total $ 14,917,630 75,146 (570,895) 14,421,881 8,368,041 1,269,074 (313,132) 9,323,983 (Continued)

29 -

Accumulated impairment Balance, beginning of period Effect of foreign currency exchange differences Balance, end of period Net book value, end of period			2016	2016
		Patents $ 111,085 - 111,085 $ 3,742,031	Goodwill $ 697,203 (26,873) 670,330 $ -	Other Intangible Assets $ 179,857 (9,243) 170,614 $ 403,838	Total $ 988,145 (36,116) 952,029 $ 4,145,869 (Concluded)

The Company owns patents of graphics technologies. As of September 30, 2017, December 31, 2016 and September 30, 2016, the carrying amounts of such patents were NT$2,461,794 thousand, NT$3,529,477 thousand and NT$3,724,356 thousand, respectively. The patents will be fully amortized over their remaining economic lives.

20. SHORT-TERM BORROWINGS

	September 30,	December	31,	September	30,
	2017	2016		2016
Unsecured borrowings
Line of credit borrowings	$ 2,000,000	$	-	$	-

As of September 30, 2017, the interest rate was 1.05%-1.15% per annum.

21. NOTE AND TRADE PAYABLES

	September 30,	September 30,	December 31,	December 31,	September 30,	September 30,
		2017		2016		2016
Notes payable	$	305	$	580	$	655
Trade payables		18,774,587		26,247,148		29,433,139
	$	18,774,892	$	26,247,728	$	29,433,794

The average term of payment is two to four months. The Company has financial risk management policies in place to ensure that all payables are paid within the pre-agreed credit terms. According to the payment obligation adjusted by periodical negotiation with suppliers, it was recognized as an adjustment to operating costs or expenses by its nature.

30 -

22. OTHER LIABILITIES

September 30,
2017

Other payables

Accrued expenses
$ 12,060,980
Payables for purchase of equipment

100,655

$ 12,161,635

Other liabilities
Advance receipts (Note 14)
$ 2,814,591
Agency receipts
120,564
Others

246,454

$ 3,181,609

Current
$ 3,124,798
Non-current

56,811

$ 3,181,609

Accrued Expenses
September 30,
2017
Marketing
$ 6,295,994
Salaries and bonuses
1,983,750
Materials and molding expenses
1,885,024
Services
757,111
Import, export and freight
257,082
Insurance
110,414
Repairs, maintenance and sundry purchase
94,263
Others

677,342

$ 12,060,980

December 31,
2016
September 30,
2016
$ 18,254,905 $ 18,626,365

93,829

110,905
$ 18,348,734
$ 18,737,270
$ 2,397,707 $ 2,750,591

434,266
342,046

172,459

148,680
$ 3,004,432
$ 3,241,317
$ 3,004,432 $ 2,849,280

-

392,037
$ 3,004,432
$ 3,241,317
December 31,
2016
September 30,
2016
$ 9,791,579 $ 10,563,351

2,029,695
2,158,433

3,077,500
2,672,550

1,196,062
1,261,575

651,893
580,522

137,183
117,624

98,773
113,063

1,272,220

1,159,247

$ 18,254,905
$ 18,626,365

The Company accrued marketing expenses on the basis of related agreements and other factors that would significantly affect the accruals.

23. PROVISIONS

		September 30,	December 31,	September 30,
		2017	2016	2016
Warranties		$ 2,561,491	$ 3,010,969	$ 4,367,872
Provisions for contingent	loss on purchase orders	305,561	373,342	515,140
		$ 2,867,052	$ 3,384,311	$ 4,883,012

31 -

Movement of provisions for the nine months ended September 30, 2017 and 2016 were as follows:

Balance, beginning of period Provisions recognized (reversed) Usage Effect of foreign currency exchange differences Balance, end of period Balance, beginning of period Provisions recognized (reversed) Usage Effect of foreign currency exchange differences Balance, end of period		2017
		Warranty Provision Provisions for Contingent Loss on Purchase Orders $ 3,010,969 $ 373,342 2,077,568 (5,693) (2,516,322) (62,088) (10,724) - $ 2,561,491 $ 305,561 2016	Total $ 3,384,311 2,071,875 (2,578,410) (10,724) $ 2,867,052
		Warranty Provision Provisions for Contingent Loss on Purchase Orders $ 5,314,365 $ 677,893 2,990,552 (129,306) (3,901,078) (33,447) (35,967) - $ 4,367,872 $ 515,140	Total $ 5,992,258 2,861,246 (3,934,525) (35,967) $ 4,883,012

The Company provides warranty service for its customers. The warranty period varies by product and is generally one year to two years. The warranties are estimated on the basis of evaluation of the products under warranty, historical warranty trends, and pertinent factors.

The provision for contingent loss on purchase orders is estimated after taking into account the effects of changes in the product market, evaluating the foregoing effects on inventory management and adjusting the Company’s purchases.

24. EQUITY

Share Capital

a. Ordinary shares

September 30, 2017 Numbers of shares authorized (in thousands of shares) 1,000,000 Shares authorized $ 10,000,000 Number of shares issued and fully paid (in thousands of shares) 821,528 Shares issued $ 8,215,276	December 31, 2016 September 30, 2016 1,000,000 1,000,000 $ 10,000,000 $ 10,000,000 822,009 822,850 $ 8,220,087 $ 8,228,499

32 -

In July 2016, the Company issued 2,657 thousand of restricted shares amounting to NT$26,570 thousand. In February, May and August 2016, the Company retired 118 thousand, 223 thousand and 176 thousand restricted shares for employees amounting to NT$1,180 thousand, NT$2,224 thousand and NT$1,762 thousand, respectively. In February and August 2016, the Company retired 4,110 thousand and 7,050 thousand treasury shares amounting to NT$41,100 thousand and NT$70,500 thousand, respectively. As a result, the amount of the Company’s outstanding ordinary shares as of September 30, 2016 decreased to NT$8,228,499 thousand, divided into 822,850 thousand ordinary shares at NT$10 par value. Every ordinary share carries one vote per share and a right to dividends.

In March, May and July 2017, HTC retired 105 thousand, 109 thousand and 268 thousand restricted shares for employees amounting to NT$1,045 thousand, NT$1,090 thousand and NT$2,676 thousand, respectively. As a result, HTC’s issued and outstanding common stock as of September 30, 2017 decreased to NT$8,215,276 thousand, divided into 821,528 thousand ordinary shares at NT$10 par value. Every ordinary share carries one vote per share and a right to dividends.

80,000 thousand shares of HTC’s common shares authorized were reserved for the issuance of employee share options.

b. Global depositary receipts

In November 2003, HTC issued 14,400 thousand ordinary shares corresponding to 3,600 thousand units of Global Depositary Receipts (“GDRs”). For this GDR issuance, HTC’s stockholders, including Via Technologies, Inc., also issued 12,878.4 thousand ordinary shares, corresponding to 3,219.6 thousand GDR units. Thus, the entire offering consisted of 6,819.6 thousand GDR units. Taking into account the effect of stock dividends, the GDRs increased to 8,782.1 thousand units (36,060.5 thousand shares). The holders of these GDRs requested HTC to redeem the GDRs to get HTC’s ordinary shares. As of September 30, 2017, there were 5,757 thousand units of GDRs redeemed, representing 23,026 thousand ordinary shares, and the outstanding GDRs represented 13,034 thousand ordinary shares or 1.59 % of HTC’s outstanding ordinary shares.

Capital Surplus

	September 30,	December 31,	September 30,
	2017	2016	2016
May be used to offset a deficit, distributed as cash
dividends, or transferred to share capital
Arising from issuance of ordinary shares	$ 14,121,223	$ 14,121,223	$ 14,121,223
Arising from consolidation excess	23,288	23,288	23,288
Arising from expired stock options	167,446	84,462	93,697
May not be used for any purpose
Arising from employee share options	594,389	645,111	641,787
Arising from employee restricted shares	745,368	740,557	726,478
	$ 15,651,714	$ 15,614,641	$ 15,606,473

The capital surplus arising from shares issued in excess of par (including share premium from issuance of ordinary shares, treasury share transactions, consolidation excess and expired stock options) and donations may be used to offset a deficit; in addition, when the Company has no deficit, such capital surplus may be distributed as cash dividends or transferred to share capital (limited to a certain percentage of the Company’s capital surplus and once a year).

33 -

In February and August 2016, the retirement of treasury shares caused a decrease of NT$70,715 thousand and NT$120,988 thousand in additional paid-in capital - issuance of ordinary shares, NT$117 thousand and NT$199 thousand in capital surplus - consolidation excess and NT$177 thousand and NT$573 thousand in capital surplus - expired stock options, respectively. The excess of the carrying value of treasury shares retired over the sum of its par value and premium from issuance of ordinary share was offset against unappropriated earnings, totaling NT$88,846 thousand and NT$244,609 thousand, respectively.

For details of capital surplus - employee share options and employee restricted shares, please see Note 30.

Retained Earnings and Dividend Policy

Under HTC’s Articles of Incorporation, HTC should make appropriations from its net income in the following order:

a. To pay taxes.
b. To cover accumulated losses, if any.
c. To appropriate 10% legal reserve unless the total legal reserve accumulated has already reached the amount of HTC’s authorized capital.
d. To recognize or reverse special reserve return earnings.
e. The Board of Directors shall propose allocation ratios for any remainder profit after withholding the amounts under subparagraphs a. to d. above plus any unappropriated retained earnings of previous years based on the dividend policy set forth in the Article and propose such allocation ratio at the shareholders’ meeting.

As part of a high-technology industry, HTC considers its operating environment, industry developments, and long-term interests of shareholders as well as its programs to maintain operating efficiency and meet its capital expenditure budget and financial goals when determining the stock or cash dividends to be paid. HTC’s dividend policy stipulates that at least 50% of total dividends may be distributed as cash dividends.

In accordance with the amendments to the Company Act in May 2015, the recipients of dividends and bonuses are limited to shareholders and do not include employees. HTC has amended the policy of its earnings distribution as stipulated in its Articles of Incorporation in order to comply with the aforementioned law amendments with an approval from the resolution of the shareholders’ meeting, and stipulated an additional policy of employees’ compensation on June 24, 2016. For information about the accrual basis of the employees’ compensation and remuneration to directors and supervisors and the actual appropriations, see employee benefits expense section as stated in Note 26.

Appropriation of earnings to legal reserve shall be made until the legal reserve equals the HTC’s capital. Legal reserve may be used to offset deficit. If HTC has no accumulated deficit and the legal reserve has exceeded 25% of its issued and outstanding capital stock, the excess may be transferred to capital stock or distributed in cash.

The loss off-setting for 2016 and 2015 had been resolved in the shareholders’ meeting on June 15, 2017 and June 24, 2016, respectively.

Information on the earnings appropriation proposed by the HTC’s Board of Directors and approved by the HTC’s shareholders is available on the Market Observation Post System website of the Taiwan Stock Exchange.

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Other Equity

	September 30,	December 31,	December 31,	September 30,	September 30,
	2017		2016		2016
Exchange differences on translating foreign
operations	$ (1,942,747)	$	(781,298)	$	(748,197)
Unrealized gain (loss) on available-for-sale
financial assets	16,792		(167,082)		(79,317)
Unearned employee benefit	(128,437)		(253,922)		(323,031)
	$ (2,054,392)	$	(1,202,302)	$	(1,150,545)

a. Exchange differences on translating foreign operations

Exchange differences relating to the translation of the results and net assets of the Company’s foreign operations from their functional currencies to the Company’s presentation currency (New Taiwan dollars) were recognized directly in other comprehensive income and accumulated in the foreign currency translation reserve. Exchange differences previously accumulated in the foreign currency translation reserve were reclassified to profit or loss on the disposal of the foreign operation.

b. Unrealized gain or loss on available-for-sale financial assets

Unrealized gains or losses on available-for-sale financial assets represents the cumulative gains and losses arising on the revaluation of AFS financial assets that have been recognized in other comprehensive income, net of amounts reclassified to profit or loss when those assets have been disposed of or are determined to be impaired.

c. Cash flow hedge

The cash flow hedging reserve represents the cumulative effective portion of gains or losses arising on changes in fair value of hedging instruments entered into for cash flow hedges. The cumulative gain or loss arising on changes in fair value of the hedging instruments that are recognized and accumulated under the heading of cash flow hedging reserve will be transferred to profit or loss only when the hedged transaction affects the profit or loss, or included as a basis adjustment to the non-financial hedged item.

d. Unearned employee benefit

In the meeting of shareholders on June 2, 2015 and June 19, 2014, the shareholders approved a restricted stock plan for employees. See Note 30 for the information of restricted shares issued.

Balance, beginning of period Issuance of shares Share-based payment expenses recognized Balance, end of period		For the Nine Months Ended September 30
		2017 2016 $ (253,922) $ (371,369) - (158,471) 125,485 206,809 $ (128,437) $ (323,031)

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Treasury Shares

On August 24, 2015, HTC’s Board of Directors passed a resolution to buy back 50,000 thousand common shares from the open market. The repurchase period was between August 25, 2015 and October 24, 2015, and the repurchase price ranged from NT$35 to NT$60 per share. If HTC’s share price was lower than this price range, HTC might continue to buy back its shares. HTC had bought back 4,110 thousand shares for NT$200,955 thousand during the repurchase period, which were retired by HTC’s Board of Directors on February 29, 2016, and such retired shares had been properly deregistered subsequently.

On May 14, 2016, HTC’s Board of Directors passed a resolution to buy back 40,000 thousand company shares from the open market. The repurchase period was between May 16, 2016 and July 15, 2016, and the repurchase price ranged from NT$47 to NT$70 per share. If HTC’s share price was lower than this price range, HTC might continue to buy back its shares. HTC had bought back 7,050 thousand shares for NT$436,869 thousand during the repurchase period which retired by HTC’s Board of Directors on August 2, 2016, and had cancelled the registration of retired shares.

(In Thousands of Shares)

	Number of
	Shares,	Addition	Reduction	Number	of
	Beginning of	During the	During the	Shares, End of
Reason to Reacquire	Period	Period	Period	Period
For the nine months ended
September 30, 2016
To maintain the Company’s
credibility and stockholders’
interest	4,110	7,050	11,160		-

Based on the Securities and Exchange Act of the ROC, the number of reacquired shares should not exceed 10% of a company’s issued and outstanding shares, and the total purchase amount should not exceed the sum of the retained earnings, additional paid-in capital in excess of par and realized capital surplus.

Under the Securities and Exchange Act, HTC shall neither pledge treasury shares nor exercise shareholders’ rights on these shares, such as rights to dividends and to vote.

25. OPERATING REVENUES

Sale of goods Other operating income		For the Three Months Ended September 30 2017 2016 $ 14,220,525 $ 21,081,373 1,485,170 1,148,961 $ 15,705,695 $ 22,230,334		For the Nine Months Ended September 30
		2017 $ 14,220,525 1,485,170 $ 15,705,695		2017 2016 $ 44,354,758 $ 53,702,865 2,017,669 2,210,575 $ 46,372,427 $ 55,913,440

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26. NET LOSS FROM CONTINUING OPERATIONS AND OTHER COMPREHENSIVE INCOME AND LOSS

a. Other income

Interest income Bank deposits Other receivables Other Dividends Others Other gains and losses Net gain on disposal of non-current assets held for sale (Note 14) Net (loss) gain on the disposal of property, plant and equipment Net gain on sale of financial assets measured at cost Net foreign exchange gain Net loss arising from financial instruments classified as held for trading Ineffective portion of cash flow hedge (Note 8) Other loss		For the Three Months Ended September 30 2017 2016 $ 62,111 $ 53,497 - - 4,255 26,283 66,366 79,780 8,135 32,284 43,117 28,919 $ 117,618 $ 140,983 For the Three Months Ended September 30 2017 2016 $ - $ - (13) 3,629 - - 134,207 243,600 (47,599) (149,120) - - (6,445) (13,952) $ 80,150 $ 84,157		For the Nine Months Ended September 30	For the Nine Months Ended September 30
				2017 2016 $ 190,738 $ 168,270 - 39,041 26,598 98,656 217,336 305,967 23,997 138,761 279,051 91,890 $ 520,384 $ 536,618 For the Nine Months Ended September 30
		2017 $ - (13) - 134,207 (47,599) - (6,445) $ 80,150		2017 $ - (4,943) 24,305 346,266 (47,599) 3,538 (15,559) $ 306,008	2016 $ 2,091,594 1,106,773 - 337,443 (149,120) 2,056 (70,329) $ 3,318,417

b. Other gains and losses

Gain or loss on financial assets and liabilities held for trading was derived from forward exchange transactions. The Company entered into forward exchange transactions to manage exposures related to exchange rate fluctuations of foreign currency denominated assets and liabilities.

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c. Impairment loss (reversal gain) on financial assets

Trade receivables Other receivables	For the Three Months Ended September 30 2017 2016 $ - $ - - 400,000 $ - $ 400,000	For the Three Months Ended September 30 2017 2016 $ - $ - - 400,000 $ - $ 400,000	For the Nine Months Ended September 30	For the Nine Months Ended September 30	For the Nine Months Ended September 30
		2017 $ - - $ -		2017 $ (362,870) - $ (362,870)	2016 $ (299,951) 700,000 $ 400,049

d. Depreciation and amortization

Property, plant and equipment Investment properties Intangible assets An analysis of depreciation - by function Operating costs Operating expenses Other losses An analysis of amortization - by function Operating costs Operating expenses		For the Three Months Ended September 30 2017 2016 $ 242,243 $ 396,974 - 10,793 344,464 377,248 $ 586,707 $ 785,015 $ 69,499 $ 266,712 172,744 130,262 - 10,793 $ 242,243 $ 407,767 $ 245 $ 724 344,219 376,524 $ 344,464 $ 377,248		For the Nine Months Ended September 30	For the Nine Months Ended September 30
		2017 $ 242,243 - 344,464 $ 586,707 $ 69,499 172,744 - $ 242,243 $ 245 344,219 $ 344,464		2017 $ 768,221 5,936 1,045,126 $ 1,819,283 $ 216,082 552,139 5,936 $ 774,157 $ 1,498 1,043,628 $ 1,045,126	2016 $ 1,382,601 34,804 1,269,074 $ 2,686,479 $ 788,280 594,321 34,804 $ 1,417,405 $ 2,251 1,266,823 $ 1,269,074

e. Employee benefits expense

Short-term benefits Post-employment benefits Defined contribution plans Defined benefit plans		For the Three Months Ended September 30 2017 2016 $ 2,742,994 $ 2,586,986 104,788 109,326 1,819 1,815 106,607 111,141		For the Nine Months Ended September 30	For the Nine Months Ended September 30
		2017 $ 2,742,994 104,788 1,819 106,607		2017 $ 8,356,711 319,426 5,450 324,876	2016 $ 8,549,511 353,413 5,439 358,852 (Continued)

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Share-based payments (Note 30) Equity-settled share-based payments Total employee benefits expense An analysis of employee benefits expense - by function Operating costs Operating expenses		For the Three Months Ended September 30 2017 2016 $ 52,529 $ 129,356 $ 2,902,130 $ 2,827,483 $ 609,025 $ 745,152 2,293,105 2,082,331 $ 2,902,130 $ 2,827,483		For the Nine Months Ended September 30	For the Nine Months Ended September 30
		2017 $ 52,529 $ 2,902,130 $ 609,025 2,293,105 $ 2,902,130		2017 $ 157,747 $ 8,839,334 $ 1,860,834 6,978,500 $ 8,839,334	2016 $ 363,131 $ 9,271,494 $ 2,195,746 7,075,748 $ 9,271,494 (Concluded)

In compliance with the Company Act as amended in May 2015, the shareholders held their meeting and resolved amendments to HTC’s Articles of Incorporation on June 24, 2016; the amendments stipulate distribution of employees’ compensation and remuneration to directors and supervisors at the rates no less than 4% and no higher than 0.25%, respectively, of net profit before income tax, employees’ compensation, and remuneration to directors and supervisors. No employee’s compensation and remuneration to directors and supervisors were estimated as the Company reported net losses for the nine months ended September 30, 2017 and 2016.

If there is a change in the proposed amounts after the annual consolidated financial statements were authorized for issue, the differences are recorded as a change in accounting estimate in the subsequent year.

For any further information of the employees’ compensation and remuneration to directors and supervisors approved in the meeting of Board of Directors in 2017 and 2016, see disclosures in the “Market Observation Post System”.

f. Impairment loss on non-financial assets

Inventories (included in operating costs)		For the Three Months Ended September 30 2017 2016 $ 534,946 $ 1,494,817		For the Nine Months Ended September 30	For the Nine Months Ended September 30
		2017 $ 534,946		2017 $ 2,772,973	2016 $ 2,518,889

g. Gain or loss on foreign currency exchange

Foreign exchange gain Foreign exchange loss	For the Three Months Ended September 30 2017 2016 $ 692,104 $ 1,625,209 (557,897) (1,381,609)	For the Nine Months Ended September 30
		2017 2016 $ 4,688,726 $ 4,334,367 (4,342,460) (3,996,924) (Continued)

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Valuation loss arising from financial instruments classified as held for trading Ineffective portion of cash flow hedge		For the Three Months Ended September 30 2017 2016 $ (47,599) $ (149,120) - - $ 86,608 $ 94,480		For the Nine Months Ended September 30	For the Nine Months Ended September 30
		2017 $ (47,599) - $ 86,608		2017 $ (47,599) 3,538 $ 302,205	2016 $ (149,120) 2,056 $ 190,379 (Concluded)

27. INCOME TAXES RELATING TO CONTINUING OPERATIONS

a. Income tax benefit (expense) recognized in profit or loss

	For the Three Months Ended	For the Three Months Ended	For the Three Months Ended	For the Three Months Ended	For the Three Months Ended		For the Nine	For the Nine	Months Ended	Months Ended
		September 30						September 30
		2017		2016				2017		2016
Current tax
In respect of the current
period	$	(17,188)	$	(64,992)			$	(104,555)		$ (204,165)
Land value increment		-			-			-		(226,333)
Adjustments for prior periods		27,955			-			87,955		-
		10,767		(64,992)				(16,600)		(430,498)
Deferred tax
In respect of the current
period		(3,487)		64,212				41,539		201,771
Income tax benefit (expense)
recognized in profit or loss	$	7,280	$	(780)			$	24,939		$ (228,727)
Integrated income tax
The imputation credit account (“ICA”) information			as of September			30, 2017, December				31, 2016 and
September 30, 2016, were as follows:
		September 30,				December 31,			September 30,
			2017				2016			2016
Unappropriated earnings generated	on and
after January 1, 1998		$	3,739,344			$	10,841,425		$	13,984,261
Balance of ICA		$	8,196,519			$	8,196,519		$	8,196,056

b. Integrated income tax

Under the Income Tax Law of ROC, for distribution of earnings generated after January 1, 1998, the imputation credits allocated to ROC resident shareholders of HTC was calculated based on the creditable ratio as of the date of dividend distribution. The actual imputation credits allocated to shareholders of HTC was based on the balance of the ICA as of the date of dividend distribution. Therefore, the expected creditable ratio for the earnings may differ from the actual creditable ratio to be used in allocating imputation credits to the shareholders.

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c. Income tax assessments

HTC’s tax returns through 2015 had been assessed by the tax authorities. HTC disagreed with the tax authorities’ assessment of its 2014 and 2015 tax return and applied for a re-examination. Nevertheless, to be conservative, HTC had accrued for the income tax assessed by the tax authorities.

The income tax returns of Yoda Co., Ltd., Communication Global Certification Inc., HTC Investment Corporation and HTC I Investment Corporation for the years through 2015 have been examined and approved by the tax authorities.

28. LOSS PER SHARE

Unit: NT$ Per Share

Basic loss per share	For the Three Months Ended September 30 2017 2016 $ (3.80) $ (2.18)	For the Three Months Ended September 30 2017 2016 $ (3.80) $ (2.18)	For the Nine Months Ended September 30	For the Nine Months Ended September 30	For the Nine Months Ended September 30
		2017 $ (3.80)		2017 $ (8.64)	2016 $ (9.05)

The loss and weighted average number of ordinary shares outstanding for the computation of loss per share were as follows:

Net Loss for the Period

Loss for the period attributable to owners of the parent Shares Weighted average number of ordinary shares in computation of basic loss per share		For the Three Months Ended September 30 2017 2016 $ (3,118,965) $ (1,789,387) For the Three Months Ended September 30 2017 2016 821,565 822,407	For the Three Months Ended September 30 2017 2016 $ (3,118,965) $ (1,789,387) For the Three Months Ended September 30 2017 2016 821,565 822,407		For the Nine Months Ended September 30	For the Nine Months Ended September 30	For the Nine Months Ended September 30
				2017 2016 $ (7,102,081) $ (7,464,716) Unit: In Thousands of Shares For the Nine Months Ended September 30
			2017 821,565			2017 821,774	2016 824,744

Unit: In Thousands of Shares

Since part of the exercise price of the employee share options issued by the Company exceeded the average market price of the shares during July 1, 2017 to September 30, 2017 and 2016, and the nine months ended September 30, 2017 and 2016, respectively, as loss per share, they were anti-dilutive and excluded from the computation of diluted earnings per share.

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29. BUSINESS COMBINATIONS

a. Subsidiaries acquired

			Proportion of
			Voting Equity
		Date of	Interests	Consideration
	Principal Activity	Acquisition	Acquired (%)	Transferred
VRChat. Inc. and its	Development of virtual	August 2, 2017	56.04	$ 118,756
subsidiary	reality devices

VRChat. Inc. and its subsidiary were invested in August 2017 by the Company to diversify the range of virtual reality development. The Company acquired 56.04% equity interest in VRChat, Inc. by investing US$3,649 thousand in cash and the convertible bonds amounted to US$275 thousand converted to preferred shares. VRChat, Inc. and its subsidiary were incorporated in consolidated financial statement by its acquisition of control.

b. Considerations transferred

	VRChat. Inc.	VRChat. Inc.
Convertible bonds converted to preferred shares	$	8,322
Cash		110,434
	$	118,756
Assets acquired and liabilities assumed at the date of acquisition
	VRChat. Inc.
Current assets
Cash and cash equivalents	$	125,865
Current liabilities
Other payables		(32,619)
	$	93,246

c. Assets acquired and liabilities assumed at the date of acquisition

d. Non-controlling interests

The non-controlling interest (43.96% ownership interest in VRChat. Inc.) recognized at the acquisition date was measured by reference to the percentage of net assets.

e. Goodwill recognized on acquisition

	VRChat. Inc.	VRChat. Inc.
Consideration transferred	$	118,756
Plus: Non-controlling interests (43.96% in VRChat. Inc.)		40,991
Less: Fair value of identifiable net assets acquired		(93,246)
Goodwill recognized on acquisition	$	66,501

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The goodwill recognized in the acquisition of VRChat. Inc. and its subsidiary mainly represents the control premium included in the cost of the combination. In addition, the consideration paid for the combination effectively included amounts attributed to the benefits of expected synergies, revenue growth, future market development and the assembled workforce of VRChat. Inc. and its subsidiary. These benefits are not recognized separately from goodwill because they do not meet the recognition criteria for identifiable intangible assets.

f. Net cash inflow on acquisition of subsidiaries

	VRChat. Inc.	VRChat. Inc.
Consideration paid in cash	$	(110,434)
Less: Cash and cash equivalent balances acquired		125,865
	$	15,431

g. Impact of acquisitions on the results of the Group

The results of the acquirees since the acquisition date included in the consolidated statements of comprehensive income were as follows:

	VRChat. Inc.
Revenue	$ -
Loss	$ (19,261)

Had these business combinations been in effect at the beginning of the annual reporting period, the Company’s revenue from continuing operations would have been NT$46,372,427 thousand, and the loss from continuing operations would have been (NT$7,137,256) thousand for the nine months ended September 30, 2017. This pro-forma information is for illustrative purposes only and is not necessarily an indication of revenue and results of operations of the Group that actually would have been achieved had the acquisition been completed on August 2, 2017, nor is it intended to be a projection of future results.

30. SHARE-BASED PAYMENT ARRANGEMENTS

Employee Share Option Plan of the Company

Qualified employees of HTC and its subsidiaries were granted 15,000 thousand options in November 2013. Each option entitles the holder to subscribe for one ordinary share of HTC. The options granted are valid for 7 years and exercisable at certain percentages after the second anniversary from the grant date.

Qualified employees of HTC and its subsidiaries were granted 19,000 thousand options in October 2014. Each option entitles the holder to subscribe for one ordinary share of HTC. The options granted are valid for 10 years and exercisable at certain percentages after the second anniversary from the grant date.

Qualified employees of HTC and its subsidiaries were granted 1,000 thousand options in August 2015. Each option entitles the holder to subscribe for one ordinary share of HTC. The options granted are valid for 10 years and exercisable at certain percentages after the second anniversary from the grant date.

The exercise price equals to the closing price of HTC’s ordinary shares on the grant date. For any subsequent changes in the HTC’s ordinary shares, the exercise price is adjusted accordingly.

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Information on employee share options were as follows:

Balance, beginning of period Options forfeited Balance, end of period Options exercisable, end of period	For the Nine Months	Ended September 30
	2017 Number of Options (In Thousands) Weighted- average Exercise Price (NT$) 20,072 $136.65 (3,281) 16,791 137.49 12,784	2016
		Number of Options (In Thousands) Weighted- average Exercise Price (NT$) 24,964 $137.20 (3,153) 21,811 136.79 5,122

Information about outstanding options as of the reporting date were as follows:

	September 30,	December 31,	September 30,
	2017	2016	2016
Range of exercise price (NT$)	$54.5-$149	$54.5-$149	$54.5-$149
Weighted-average remaining contractual life
(years)	5.50 years	6.30 years	6.56 years

Options granted in August 2015, October 2014 and November 2013 were priced using the trinomial option pricing model and the inputs to the model were as follows:

	August 2015	October 2014	November 2013
Grant-date share price (NT$)	$54.50	$134.50	$149.00
Exercise price (NT$)	$54.50	$134.50	$149.00
Expected volatility	39.26%	33.46%	45.83%
Expected life (years)	10 years	10 years	7 years
Expected dividend yield	4.04%	4.40%	5.00%
Risk-free interest rate	1.3965%	1.7021%	1.63%

Expected volatility was based on the historical share price volatility over the past 1 year. The Company assumed that employees would exercise their options after the vesting date when the share price was 1.63 times the exercise price.

Employee Restricted Shares

In the shareholder meeting on June 19, 2014 and June 2, 2015, the shareholders approved a restricted stock plan for employees with a total amount of $50,000 thousand and $75,000 thousand, consisting of 5,000 thousand and 7,500 thousand shares, respectively. In 2014 and 2015 HTC’s Board of Directors passed a resolution to issue 5,000 thousand and 7,500 thousand shares, respectively.

The restrictions on the rights of the employees who acquire the restricted shares but have not met the vesting conditions are as follows:

a. The employees cannot sell, pledge, transfer, donate or in any other way dispose of these shares.
b. The employees holding these shares are entitled to receive cash and dividends in share.
c. The employees holding these shares have no voting rights.
44 -

If an employee fails to meet the vesting conditions, HTC will recall or buy back and cancel the restricted shares. For the 2016 and the nine months ended September 30, 2017, HTC retired 1,358 thousand and 481 thousand restricted shares for employees amounting to NT$13,578 thousand and NT$4,811 thousand, respectively. As a result, the numbers of the HTC’s issued and outstanding employee restricted shares as of September 30, 2017 was 5,953 thousand shares. The related information was as follows:

Grant-date	July 18, 2016	December 23, 2015	August 10, 2015	November 2, 2014
Grant-date fair value (NT$)	$96.90	$76.20	$57.50	$134.50
Exercise price	Gratuitous	Gratuitous	Gratuitous	Gratuitous
Numbers of shares	2,657	4,006	400	4,600
(thousand shares)
Vesting period (years)	1-4 years	1-3 years	1-3 years	1-3 years

Compensation Cost of Share-based Payment Arrangements

Compensation cost of share-based payment arrangement recognized was NT$157,747 thousand and NT$363,131 thousand for the nine months ended September 30, 2017 and 2016, respectively.

31. CAPITAL RISK MANAGEMENT

The Company manages its capital to ensure its ability to continue as a going concern while maximizing the returns to shareholders. The Company periodically reviews its capital structure by taking into consideration macroeconomic conditions, prevailing interest rate, and adequacy of cash flows generated from operations; as the situation would allow, the Company pays dividends, issues new shares, repurchases shares, issues new debt, and redeems debt.

The Company is not subject to any externally imposed capital requirements.

32. FINANCIAL INSTRUMENTS

Fair Value of Financial Instruments That Are Not Measured at Fair Value

Financial instruments not carried at fair value held by the Company include financial assets measured at cost and debt investments with no active market. The management considers that the carrying amounts of financial assets and financial liabilities not carried at fair value approximate their fair value or the fair value are not measured reliably.

Fair Value of Financial Instruments That Are Measured at Fair Value on a Recurring Basis

a. Fair value hierarchy

September 30, 2017

Financial assets at FVTPL Derivative financial instruments Available-for-sale financial assets Domestic listed stocks - equity investments Overseas listed stocks - equity investments	Level 1 $ - $ 95 369,547 $369,642	Level 2 $ 95,099 $ - - $ -	Level 3 $ - $ - - $ -	Total $ 95,099 $ 95 369,547 $369,642 (Continued)

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Financial liabilities at FVTPL Derivative financial instruments December 31, 2016 Financial assets at FVTPL Derivative financial instruments Available-for-sale financial assets Domestic listed stocks - equity investments Overseas listed stocks - equity investments Financial liabilities at FVTPL Derivative financial instruments September 30, 2016 Financial assets at FVTPL Derivative financial instruments Available-for-sale financial assets Domestic listed stocks - equity investments Overseas listed stocks - equity investments Financial liabilities at FVTPL Derivative financial instruments	Level 1 $ - Level 1 $ - $ 86 199,344 $ 199,430 $ - Level 1 $ - $ 92 277,464 $ 277,556 $ -	Level 2 $142,698 Level 2 $ 143,642 $ - - $ - $ 133,420 Level 2 $ 18,017 $ - - $ - $ 167,137	Level 3 $ - Level 3 $ - $ - - $ - $ - Level 3 $ - $ - - $ - $ -	Total $142,698 (Concluded) Total $ 143,642 $ 86 199,344 $ 199,430 $ 133,420 Total $ 18,017 $ 92 277,464 $ 277,556 $ 167,137

There were no transfers between Levels 1 and 2 for the nine months ended September 30, 2017 and 2016.

b. Valuation techniques and inputs applied for the purpose of measuring Level 2 fair value measurement

Financial Instruments Valuation Techniques and Inputs Derivatives - foreign currency Discounted cash flow: Future cash flows are estimated based contracts on observable forward exchange rates at the end of the reporting period and contract forward rates, discounted at a rate that reflects the credit risk of various counterparties.

46 -

Categories of Financial Instruments

	September 30,	September 30,	December 31,	December 31,	September 30,	September 30,
		2017		2016		2016
Financial assets
FVTPL
Held for trading (Note 1)	$	223,720	$	143,642	$	18,017
Loans and receivables (Note 2)		34,015,787		53,495,584		54,511,668
Available-for-sale financial assets (Note 3)		3,579,172		3,563,166		3,499,060
Financial liabilities
FVTPL
Held for trading		142,698		133,420		167,137
Amortized cost (Note 4)		33,062,894		45,052,834		48,536,472

Note 1: The balances included financial assets held for trading and financial assets measured at cost held for trading.
Note 2: The balances included loans and receivables measured at amortized cost, which comprise cash and cash equivalents, debt investments with no active market, other financial assets, trade receivables, other receivables and refundable deposits.
Note 3: The balances included available-for-sale financial assets and the carrying amount of available-for-sale financial assets measured at cost.
Note 4: The balances included financial liabilities measured at amortized cost, which comprise short-term borrowings, note and trade payables, other payables, agency receipts and guarantee deposits received.

Financial Risk Management Objectives and Policies

The Company’s major financial instruments include equity and debt investments, trade receivables, other receivables, trade payables and other payables. The Company’s Corporate Treasury function provides services to the business, coordinates access to domestic and international financial markets, monitors and manages the financial risks relating to the operations of the Company through internal risk reports which analyze the exposures by degree and magnitude of risks. These risks include market risk, credit risk and liquidity risk.

The Company sought to minimize the effects of these risks by using derivative financial instruments and non-derivative financial instruments to hedge risk exposures. The use of financial derivatives was governed by the Company’s policies approved by the Board of Directors, which provide written principles on foreign exchange risk, interest rate risk, credit risk, the use of financial derivatives and non-derivative financial instruments, and the investment of excess liquidity. Compliance with policies was reviewed by the internal auditors on a continuous basis. The Company did not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes.

The Corporate Treasury function reports quarterly to the Company’s supervisory and Board of Directors for monitoring risks and policies implemented to mitigate risk exposures.

a. Market risk

The Company’s activities exposed it primarily to the financial risks of changes in foreign currency exchange rates. The Company entered into a variety of derivative financial instruments to manage its exposure to foreign currency risk.

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There had been no change to the Company’s exposure to market risks or the manner in which these risks were managed and measured.

Foreign currency risk

The Company undertook transactions denominated in foreign currencies; consequently, exposures to exchange rate fluctuations arose. Exchange rate exposures were managed within approved policy parameters utilizing forward exchange contracts.

The carrying amounts of the Company’s foreign currency denominated monetary assets and monetary liabilities and of the derivatives exposing to foreign currency risk at the end of the reporting period are set out in Note 36.

Sensitivity analysis

The Company was mainly exposed to the currency United Stated dollars (“USD”), currency Euro (“EUR”), currency Renminbi (“RMB”) and currency Japanese yen (“JPY”).

The following table details the Company’s sensitivity to a 1% increase and decrease in the New Taiwan dollars (“NTD”, the functional currency) against the relevant foreign currencies. The sensitivity analysis included only outstanding foreign currency denominated monetary items and foreign currency forward contracts designated as cash flow hedges. A positive number below indicates an increase in pre-tax profit (loss) or equity associated with the NTD strengthens 1% against the relevant currency. For a 1% weakening of the NTD against the relevant currency, there would be an equal and opposite impact on pre-tax profit (loss) or equity, and the balances below would be negative.

	Profit or Loss	Profit or Loss	Equity
For the nine months ended September 30, 2017
USD	$	45,153	$ (143,755)
EUR		482	(4,928)
RMB		(6,486)	(106,084)
JPY		(1,497)	(1,384)
For the nine months ended September 30, 2016
USD		26,055	(157,677)
EUR		(12,996)	(19,145)
RMB		(20,845)	(132,049)
JPY		(1,240)	(1,425)

b. Credit risk

Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in financial loss to the Company. As at the end of reporting period, the Company’s maximum exposure to credit risk which will cause a financial loss to the Company due to failure of counterparties to discharge an obligation and financial guarantees provided by the Company could arise from the carrying amount of the respective recognized financial assets as stated in the balance sheets. The Company does not issue any financial guarantee involving credit risk.

The Company adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral, where appropriate, as a means of mitigating the risk of financial loss from defaults.

The credit risk information of trade receivables are disclosed in the Note 11.

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c. Liquidity risk

The Company manages liquidity risk to ensure that the Company possesses sufficient financial flexibility by maintaining adequate reserves of cash and cash equivalents and reserve financing facilities, and also monitor liquidity risk of shortage of funds by the maturity date of financial instruments and financial assets.

1) Liquidity risk rate tables for non-derivative financial liabilities

The following table details the Company’s remaining contractual maturity for its non-derivative financial liabilities with agreed repayment periods. The tables had been drawn up based on the undiscounted cash flows of financial liabilities from the earliest date on which the Company can be required to pay.

September 30, 2017

Non-derivative financial liabilities Short-term borrowings Note and trade payables Other payables Other current liabilities Guarantee deposits received December 31, 2016 Non-derivative financial liabilities Note and trade payables Other payables Other current liabilities Guarantee deposits received September 30, 2016 Non-derivative financial liabilities Note and trade payables Other payables Other current liabilities Guarantee deposits received	Less Than 3 Months $ 2,000,000 10,625,447 6,291,841 120,564 - $ 19,037,852 Less Than 3 Months $ 10,641,728 10,341,957 371,910 - $ 21,355,595 Less Than 3 Months $ 13,876,891 9,771,889 279,690 - $ 23,928,470	3 Months to 1 Year $ - 8,149,445 5,869,794 - - $ 14,019,239 3 Months to 1 Year $ 15,606,000 8,006,777 62,356 - $ 23,675,133 3 Months to 1 Year $ 15,556,903 8,965,381 62,356 - $ 24,584,640	Over 1 Year $ - - - - 5,803 $ 5,803 Over 1 Year $ - - - 22,106 $ 22,106 Over 1 Year $ - - - 23,362 $ 23,362

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2) Liquidity risk rate tables for derivative financial instruments

The following table detailed the Company’s liquidity analysis for its derivative financial instruments. The table was based on the undiscounted contractual net cash inflows and outflows on derivative instruments that settle on a net basis, and the undiscounted gross inflows and outflows on those derivatives that require gross settlement.

September 30, 2017

Net settled Forward exchange contracts Gross settled Forward exchange contracts Inflows Outflows December 31, 2016 Net settled Forward exchange contracts Gross settled Forward exchange contracts Inflows Outflows September 30, 2016 Net settled Forward exchange contracts Gross settled Forward exchange contracts Inflows Outflows	Less Than 3 Months $ 31,802 $ 19,497,643 (19,544,951) $ (47,308) Less Than 3 Months $ 73,323 $ 15,227,772 (15,250,504) $ (22,732) Less Than 3 Months $ (23,771) $ 14,256,300 (14,338,878) $ (82,578)	3 Months to 1 Year $ - $ - - $ - 3 Months to 1 Year $ - $ - - $ - 3 Months to 1 Year $ - $ - - $ -	Over 1 Year $ - $ - - $ - Over 1 Year $ - $ - - $ - Over 1 Year $ - $ - - $ -

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3) Bank credit limit

	September 30,	September 30,	December 31,	December 31,	September 30,	September 30,
		2017		2016		2016
Unsecured bank general credit limit
Amount used	$	2,332,726	$	710,857	$	984,028
Amount unused		16,362,589		22,227,369		20,456,736
	$	18,695,315	$	22,938,226	$	21,440,764

Amount used was included short-term borrowings, guarantee for customs duties and for patent litigation.

33. RELATED-PARTY TRANSACTIONS

Balance, transactions, revenue and expenses between HTC and its subsidiaries, which are related parties of HTC, have been eliminated on consolidation and are not disclosed in this note. Besides as disclosed elsewhere in other notes, details of transactions between the Company and other related parties are disclosed below.

The Names and Relationships of Related-parties

Related-party
VIA Technologies Inc.

VIA Labs, Inc.

Way Chih Investment Co., Ltd.

HTC Education Foundation

TVBS Media Inc.

Hung-Mao Investment Co., Ltd.

Nan Ya Plastics Corporation

Atrust Computer Corporation

Employees’ Welfare Committee

Huada Digital Corporation

VIA Technologies (China) Co., Ltd.

Relationship with the Company

Its chairman in substance is HTC’s director
Its chairman in substance is HTC’s director
HTC’s supervisor
Its chairman in substance is HTC’s director
Same director as HTC’s
Its significant shareholder in substance is HTC’s chairwoman
Its director in substance and HTC’s chairwoman are relatives and
other relatives
Its chairman in substance is HTC’s general manager
Employees’ Welfare Committee of HTC
Joint Venture
The chairman of its parent company in substance is HTC’s director

Operating Sales

Joint venture Employees’ Welfare Committee Other related parties	For the Three Months Ended September 30 2017 2016 $ - $ - - 360 6,357 1,831 $ 6,357 $ 2,191	For the Three Months Ended September 30 2017 2016 $ - $ - - 360 6,357 1,831 $ 6,357 $ 2,191	For the Nine Months Ended September 30	For the Nine Months Ended September 30	For the Nine Months Ended September 30
		2017 $ - - 6,357 $ 6,357		2017 $ - - 12,324 $ 12,324	2016 $ 28,955 817 8,097 $ 37,869

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The following balances of trade receivables from related parties were outstanding at the end of the reporting period:

	September 30,	September 30,	December 31,	September 30,	September 30,
		2017	2016		2016
Other related parties	$	974	$ 15,720	$	11

The selling prices for products sold to related parties were lower than those sold to third parties, except some related parties have no comparison with those sold to third parties. No guarantees had been given or received for trade receivables from related parties. No bad debt expense had been recognized for the nine months ended September 30, 2017 and 2016 for the amounts owed by related parties.

Purchase

Other related parties	For the Three Months Ended September 30 2017 2016 $ - $ -	For the Three Months Ended September 30 2017 2016 $ - $ -	For the Nine Months Ended September 30	For the Nine Months Ended September 30	For the Nine Months Ended September 30
		2017 $ -		2017 $ 2,392	2016 $ -

Purchase prices for related parties and third parties were similar.

The following balances of trade payables from related parties were outstanding at the end of the reporting period:

	September	September	30,	December 31,	December 31,	September	September	30,
		2017			2016		2016
Other related parties	$		-	$	1,866	$		-

The outstanding balance of trade payables to related parties are unsecured and will be settled in cash.

Compensation of Key Management Personnel

Short-term benefits Post-employment benefits Termination benefits Share-based payments	For the Three Months Ended September 30 2017 2016 $ 17,086 $ 30,621 208 306 - - 17,066 25,780 $ 34,360 $ 56,707	For the Three Months Ended September 30 2017 2016 $ 17,086 $ 30,621 208 306 - - 17,066 25,780 $ 34,360 $ 56,707	For the Nine Months Ended September 30
		2017 $ 17,086 208 - 17,066 $ 34,360	2017 2016 $ 61,177 $ 191,911 1,048 961 - 17,583 42,356 65,008 $ 104,581 $ 275,463

The remuneration of directors and key executives was determined by the remuneration committee having regard to the performance of individuals and market trends.

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Rental Expenses

VIA Technologies (China) Co., Ltd. Other related parties	For the Three Months Ended September 30 2017 2016 $ 6,031 $ - 1,047 - $ 7,078 $ -	For the Three Months Ended September 30 2017 2016 $ 6,031 $ - 1,047 - $ 7,078 $ -	For the Nine Months Ended September 30	For the Nine Months Ended September 30	For the Nine Months Ended September 30
		2017 $ 6,031 1,047 $ 7,078		2017 $ 18,151 3,122 $ 21,273	2016 $ - - $ -

The Company leased offices, staff dormitory and meeting rooms owned by VIA Technologies (China) Co., Ltd. and a related party under an operating lease agreement, respectively. The rental payment is determined at the prevailing rates in the surrounding area.

Other Related-party Transactions

Other related parties provide selling and marketing service to the Company. The selling and marketing service expenses was NT$6,000 thousand and NT$6,397 thousand for the nine months ended September 30, 2017 and 2016, respectively.

34. PLEDGED ASSETS

As of September 30, 2017, December 31, 2016 and September 30, 2016, the time of deposits amounting to NT$152,111 thousand, NT$113,528 thousand and NT$97,830 thousand and were classified as other current financial assets were provided respectively as collateral for litigation.

35. COMMITMENTS, CONTINGENCIES AND SIGNIFICANT CONTRACTS

a. In April 2008, IPCom GMBH & CO., KG (“IPCom”) filed a multi-claim lawsuit against the Company with the District Court of Mannheim, Germany, alleging that the Company infringed IPCom’s patents. In November 2008, the Company filed declaratory judgment action for non-infringement and invalidity against three of IPCom’s patents with the Washington Court, District of Columbia.

In October 2010, IPCom filed a new complaint against the Company alleging patent infringement of patent owned by IPCom in District Court of Dusseldorf, Germany.

In June 2011, IPCom filed a new complaint against the Company alleging patent infringement of patent owned by IPCom with the High Court in London, the United Kingdom. In September 2011, the Company filed declaratory judgment action for non-infringement and invalidity in Milan, Italy. Legal proceedings in above-mentioned Courts in Germany and the United Kingdom are still ongoing. The Company implemented the alternative solution since 2012. The Company evaluated the lawsuits and considered the risk of patents-in-suits are low. Also, preliminary injunction and summary judgment against the alternative solution of the Company are very unlikely.

In March 2012, Washington Court granted on the Company’s summary judgment motion and ruled on non-infringement of two of patents-in-suit. As for the third patents-in-suit, the Washington Court has granted a stay on case pending appeal decision. In January 2014, the Court of Appeal for the Federal Circuit affirmed the Washington Court’s decision.

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In February 2017, the Court of appeal of the United Kingdom found the alternative solution of the Company did not infringed and only some old products without the alternative solution infringed the United Kingdom part of European patent No. 1841268 (EP ‘268 patent). The EP ‘268 patent was held to be valid by European Patent Office on July 18, 2017. The next hearing has not been scheduled by the Courts yet.

As of the date that the Board of Directors approved and authorized for issuing consolidated financial statements, there had been no critical Court decision been made, except for the above.

b. In December 2015, Koninklijke Philips N.V. (Philips) filed a lawsuit against the Company in the District Court of Mannheim, Germany, alleging infringement of certain Philips patents. In October 2016, the Mannheim Court found that certain smartphone products sold by Company in Germany infringed the German part of European patent No. 0888687 (EP ‘687 patent), which relates to device user interface, and granted an injunction against the Company. However, Philips has not enforced the injunction. In July 2017, the German Federal Patent Court found that EP ‘687 patent is invalid. The litigations between the Company and Philips are ongoing. In order to protect the interests of the Company, and its customers, the Company has appealed the Court’s decision.

As of the date that the Board of Directors approved and authorized for issuing consolidated financial statements, the appeals Court has not issued a ruling with respect to the EP ‘687 patent.

In October 2017, the court of appeal of the United Kingdom dismissed HTC’s appeal allegation that the rights we obtain by virtue of a covenant between Philips and Qualcomm extend to Philips’ patents covering HSPA technology. As such, the covenant does not provide HTC with a defense against the patent actions in suit relating to this technology. The technical hearings of the three patents in suit will now proceed as follows: EP (UK) 1440525 is scheduled for April 2018 whilst EP (UK) 1685659 and EP (UK) 1623511 are both scheduled for June 2018.

c. On the basis of its past experience and consultations with its legal counsel, the Company has measured the possible effects of the contingent lawsuits on its business and financial condition.

36. SIGNIFICANT ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES

The following information was aggregated by the foreign currencies other than functional currencies of the Company entities and the exchange rates between foreign currencies and respective functional currencies were disclosed. The significant assets and liabilities denominated in foreign currencies were as follows:

Financial assets Monetary items USD EUR JPY RMB Non-monetary items USD RMB Investments accounted for by the equity method USD RMB	September 30, 2017 Foreign Currencies Exchange Rate $ 1,555,373 30.30 57,663 35.73 5,008,616 0.2695 858,174 4.56 98,192 30.30 1,536 4.56 4,556 30.30 1,310 4.56	December 31, 2016 Foreign Currencies Exchange Rate $ 1,914,574 32.27 101,434 33.91 2,711,104 0.2756 1,208,051 4.62 84,259 32.27 167 4.62 16,111 32.27 2,500 4.62	September 30, 2016
			Foreign Currencies Exchange Rate $ 1,905,132 31.36 110,617 35.08 2,883,335 0.3108 1,339,968 4.70 82,184 31.36 - - 16,624 31.36 - - (Continued)

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Financial liabilities Monetary items USD EUR JPY RMB	September 30, 2017 Foreign Currencies Exchange Rate $ 1,247,221 30.30 46,173 35.73 4,948,534 0.2695 200,759 4.56	December 31, 2016 Foreign Currencies Exchange Rate $ 1,445,356 32.27 93,533 33.91 6,745,333 0.2756 212,669 4.62	September 30, 2016
			Foreign Currencies Exchange Rate $ 1,458,724 31.36 54,577 35.08 2,434,974 0.3108 228,996 4.70 (Concluded)

For the nine months ended September 30, 2017 and 2016, realized and unrealized net foreign exchange gains were NT$302,205 thousand and NT$190,379 thousand, respectively. It is impractical to disclose net foreign exchange gains or losses by each significant foreign currency due to the variety of the foreign currency transactions and functional currencies of the group entities.

37. SIGNIFICANT CONTRACTS

The Company specializes in the research, design, manufacture and sale of smart mobile devices. To enhance the quality of its products and manufacturing technologies, the Company has patent agreements, as follows:

Contractor	Term January 1, 2015 - December 31, 2017 December 20, 2000 to the following dates: a. If the Company materially breaches any agreement terms and fails to take remedial action within 30 days after Qualcomm’s issuance of a written notice, the Company will be prohibited from using Qualcomm’s property or patents. b. Any time when the Company is not using any of Qualcomm’s intellectual property, the Company may terminate this agreement upon 60 days’ prior written notice to Qualcomm. January 1, 2014 - December 31, 2018	Description
Apple, Inc. Qualcomm Incorporated. Nokia Corporation		The scope of this license covers both the current and future patents held by the parties as agreed upon and specifically set forth in the agreement, with payment based on the agreement. Authorization to use CDMA technology to manufacture and sell units, royalty payment based on agreement. Patent and technology collaboration; payment for use of implementation patents based on agreement. (Continued)

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Contractor InterDigital Technology Corporation Koninklijke Philips Electronics N.V. MOTOROLA, Inc. Siemens Aktiengesellschaft IV International Licensing Netherlands, B.V. Google Inc.	Term December 31, 2003 to the expiry dates of these patents stated in the agreement. January 5, 2004 to the expiry dates of these patents stated in the agreement. December 23, 2003 to the latest of the following dates: a. Expiry dates of patents stated in the agreement. b. Any time when the Company is not using any of Motorola’s intellectual properties. July 2004 to the expiry dates of these patents stated in the agreement. November 2010 - June 2020 September 21, 2017 - Closing Date	Description
		Authorization to use TDMA and CDMA technologies; royalty payment based on agreement. GSM/DCS 1800/1900 patent license; royalty payment based on agreement. TDMA, NARROWBAND CDMA, WIDEBAND CDMA or TD/CDMA standards patent license or technology; royalty payment based on agreement. Authorization to use GSM, GPRS or EDGE patent license or technology; royalty payment based on agreement. Authorization to use wireless technology; royalty payment based on agreement. Certain HTC employees whom are already working with Google Inc. to develop Pixel smartphones will join Google Inc. HTC will receive US$1.1 Billion in cash from Google Inc. as part of the transaction. Separately, Google Inc. will receive a non-exclusive license for HTC intellectual property. (Concluded)

37. SEGMENT INFORMATION

The Company is organized and managed as a single reportable business segment. The Company’s operations are mainly in the research, design, manufacture and sale of smart mobile devices and the operating revenue is more than 90 percent of the total revenue.

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AI assistant

HTC — Interim / Quarterly Report 2017

52128_rns_2017-11-09_19ac3b85-3b1c-48b1-8db7-a398bc37cf3e.pdf

HTC Corporation and Subsidiaries

INDEPENDENT AUDITORS’ REVIEW REPORT

Notice to Readers

HTC CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In Thousands of New Taiwan Dollars)

HTC CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In Thousands of New Taiwan Dollars, Except Loss Per Share) (Reviewed, Not Audited)

HTC CORPORATION AND SUBSIDIARIES

HTC CORPORATION AND SUBSIDIARIES

HTC CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands of New Taiwan Dollars) (Reviewed, Not Audited)

HTC CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands of New Taiwan Dollars) (Reviewed, Not Audited)

HTC CORPORATION AND SUBSIDIARIES

1. ORGANIZATION AND OPERATIONS

2. APPROVAL OF FINANCIAL STATEMENTS

3. APPLICATION OF NEW, AMENDED AND REVISED STANDARDS AND INTERPRETATIONS

Hedge accounting

1) IFRS 16 “Leases”

2) IFRIC 23 “Uncertainty Over Income Tax Treatments”

4. SIGNIFICANT ACCOUNTING POLICIES

Statement of Compliance

Basis of Consolidation

Other Significant Accounting Policies

b. Taxation

5. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

6. CASH AND CASH EQUIVALENTS

7. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS

Forward Exchange Contracts

September 30, 2017

December 31, 2016

September 30, 2016

8. DERIVATIVE FINANCIAL INSTRUMENTS FOR HEDGING

9. FINANCIAL ASSETS MEASURED AT COST

10. OTHER CURRENT FINANCIAL ASSETS

11. TRADE RECEIVABLES AND OTHER RECEIVABLES

Trade Receivables

Aging of trade receivables

Aging of impaired trade receivables

Other Receivables

12. INVENTORIES

13. PREPAYMENTS

14. NON-CURRENT ASSETS HELD FOR SALE

15. SUBSIDIARIES

a. Subsidiary included in consolidated financial statements

16. INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD

Investments in Associate

Investments in Joint Venture

17. PROPERTY, PLANT AND EQUIPMENT

18. INVESTMENT PROPERTIES, NET

19. INTANGIBLE ASSETS

20. SHORT-TERM BORROWINGS

21. NOTE AND TRADE PAYABLES

22. OTHER LIABILITIES

23. PROVISIONS

24. EQUITY

Share Capital

b. Global depositary receipts

Capital Surplus

Retained Earnings and Dividend Policy

Other Equity

c. Cash flow hedge

Treasury Shares

(In Thousands of Shares)

25. OPERATING REVENUES

26. NET LOSS FROM CONTINUING OPERATIONS AND OTHER COMPREHENSIVE INCOME AND LOSS

a. Other income

27. INCOME TAXES RELATING TO CONTINUING OPERATIONS

b. Integrated income tax

c. Income tax assessments

28. LOSS PER SHARE

Net Loss for the Period

Shares

29. BUSINESS COMBINATIONS

a. Subsidiaries acquired

b. Considerations transferred

HTC Interim / Quarterly Report 2017